What Are Recoverable Reserves
Recoverable reserves are oil and gas reserves that are economically and technically feasible to extract at the existing price of oil.
Resource reserves are important to companies' balance sheets because they are assets that the company projects it will monetize and affect the company's value to investors.
- Recoverable reserves, that is oil or gas that are worth recovering, fluctuate with the price of oil and gas.
- Resources are considered recoverable reserves if they can be extracted for a profit and without running foul of government regulations.
- The SEC requires reserves that are of questionable certainty with respect to their recoverability to be verified by a third party before an oil and gas company can publicly state them to potential investors.
Understanding Recoverable Reserves
Recoverable reserves fluctuate with the price of oil and gas, unlike oil or gas resources that can be technically recovered at any price. Resources are considered recoverable reserves if they can be developed with reasonable certainty from a given date under current economic conditions, operating methods, and government regulations.
Resource reserves have specific classifications related to the degree of certainty with which they can be recovered, based on seismic and engineering data. Degrees of uncertainty are expressed by dividing oil reserves into two primary classifications, proven and unproven.
Proven reserves are reserves considered to have a 90% probability of being recoverable. Unproven reserves are not deemed recoverable, due to regulatory or economic factors. This class of reserves is further broken down into probable and possible reserves. Probable reserves are reserves that have an estimated confidence level of approximately 50% of being successfully recovered. Possible reserves are those with only a 10% probability of recovery. The SEC requires the lower certainty evaluations to be verified by a third party before an oil and gas company can publicly state them to potential investors.
Until 2009, the U.S. Securities and Exchange Commission allowed only 1P proven reserves (both proven developed reserves and proven undeveloped reserves) to be publicly reported to potential investors. Since then, it has allowed companies to provide information about 2P (both proven and probable) and 3P (proven plus probable plus possible) reserves, provided the evaluation is verified by qualified third-party consultants.
Once an oil and gas field moves on from exploration into development and production, recoverable reserves are categorized as developed and undeveloped.
Examples of Recoverable Reserves
Several sites around the world have recoverable reserves that companies list on their regulatory filings with the SEC.
The Bakken Formation, USA
The Bakken Formation is a rock formation located in the Williston Basin that stretches from eastern Montana to western North Dakota, South Dakota, and southern Saskatchewan. The United States Geological Survey (USGS) estimates, "there may be 4.4 to 11.4 billion barrels of undiscovered, technically recoverable oil" in the Bakken formation, making the oil worth half a trillion dollars at $60 per barrel.
The Canadian province of Alberta contains most of Canada's recoverable reserves, accounting for more than four-fifths of Canada's crude oil production. According to Natural Resources Canada, Canada has ten percent of the world's total oil reserves or approximately 167 billion barrels.
Venezuela has the worlds largest proven oil reserves at 18 percent of the total or approximately 300 billion barrels. Venezuela's oil industry is nationalized, however, and due to sanctions imposed by world governments, the country's oil production has dropped from a peak of 3.45 million barrels per day in 1997 to just 877,000 barrels per day at the end of 2019.