How do proven and unproven oil reserves differ?

Investing

In the oil and gas sector, proven reserves have a reasonable certainty of being recovered, while unproven reserves have a decreased level of certainty in being recovered. Recoverable oil reserves are the amount of oil that can reasonably be recovered given current technical and economic conditions. Reserves have specific classifications related to the degree of certainty with which they can be recovered.

Classifying Oil Reserves by Certainty of Recovery

All oil reserves involve some degree of uncertainty regarding their recovery. The certainty of recovery is based on the total reliable seismic and engineering data available and how such data is interpreted. The various degrees of uncertainty are expressed by dividing oil reserves into two primary classifications, proven and unproven.

Proven Reserves

Proven reserves are those that claim an approximate certainty level of at least 90% of being successfully recovered. For specialists in the oil industry, proven reserves are known as P90 or 1P. Before 2010, the U.S. Securities and Exchange Commission, or SEC, allowed only proven reserves to be publicly reported to potential investors.

Unproven Reserves

Unproven reserves, due to regulatory or economic factors, are estimated as less recoverable and therefore unproven. This class of reserves is further broken down into subcategories of probable and possible.

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% estimated 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.

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