What is a 'Possible Reserves'

Possible reserves are an estimate of the amount of oil or natural gas reserves that may be available for extraction in an area using existing equipment, and under existing conditions.

Possible reserves are one of the three primary recognized categories of The Society of Petroleum Engineers.

BREAKING DOWN 'Possible Reserves'

​​​​​​​Possible reserves are a subset of unproved reserves of natural gas or petroleum. Reserve can be proven and unproven. However, unproved reserves carry more uncertainty. These categories help experts determine the fair market value (FMV) of a company’s reserves. FMV is the price that an item would sell for on the open market. The value helps a company in planning and budgeting purposes.

Operating conditions are taken into account when determining how to classify any given oil reserve. These include operational break-even price, regulatory and contractual approvals, without which the reserve cannot be classified. Market price changes of the commodity, therefore, can have a large impact on the classification of reserves. Regulatory and contractual conditions may change and also affect the amount of reserves.

Because of the geological complexity surrounding natural resource exploration, oil reserve figures are more of an approximation than an exact estimate. Additional information on the geological makeup of a particular reserve causes estimates to be updated. Also, technological advances may increase the amount of oil or gas which is recoverable, as less of the natural resource will go to waste as efficiency increases.

To Drill or Not to Drill Reserve Classification

The Society of Petroleum Engineers recognizes three main categories of oil reserves based upon how likely an exploration and drilling company can extract the resource.

  1. Proved reserves sit at the top of the scale, at a 90-percent or above likelihood of commercial extraction.
  2. Probable reserves are those with the likelihood of recovery for between possible and proved reserves, or over 50-percent but under 90-percent.
  3. Possible reserves lie at the low end of the scale, with odds of commercial extraction under 50-percent, but higher than 10 percent.

If a reserve's resources can be recovered using current technology but are not economically profitable it is considered "technically recoverable" but cannot be considered a proven reserve. Taken together, proved, probable and possible reserves are known as 3P reserves and include the combination of all three categories.

Examples of Possible Reserves

Possible reserves may include reserves which, based on geological interpretations, could possibly exist beyond areas classified as probable. They may include reserves in formations that appear to be petroleum-bearing based on analysis, but may not be productive at commercial rates. 

Possible reserves include incremental reserves attributed to infill drilling which are subject to technical uncertainty, and reserves attributed to improved recovery methods when a project or pilot is planned. 

Also, some reserves nearby proven areas will rate as possible. Companies will use faulting and geological interpretation for the region in question. If the subject area is structurally lower than the proved area, it will receive the possible classification.

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