3P oil reserves are the overall quantity of reserves to that a corporation believes it’s access, calculated because the addition of all evidenced and on trial reserves. The 3Ps represent proven, probable and possible reserves. The petroleum industry divides unproven reserves into two segments: those based on geological and technical estimates from established sources (probable) and those which are less likely to be mined due to financial or technical difficulties (possible). Therefore, 3P refers to the most probable and possible proved reserves. This can be contrasted with 2P oil, which only includes proven and probable reserves.
look at a glance
— 3P Oil reserves are the total amount of estimated reserves, including all proven and unproven reserves to which a company has access.
— Each reserve category used in the calculation is assigned a probability in terms of viability of crude oil recovery.
— Most oil and gas companies provide optimistic estimates of their 3P oil reserves; therefore, investors rely on the findings of independent consultants to assess their stock choices.
Realizing 3P Oil Reserves
The 3P estimate is an optimistic estimate of what could be pumped from a well by an oil company. The three different categories of reserves also have different production probabilities. For example, the petroleum industry gives proven reserves 90% production certainty (P90). The industry permits probable reserves 50% certainty (P50) and possible reserves 10% certainty (P10) of actually being produced.
Another way to think about the concept of different categories of reserves is to use a fishing analogy where proven reserves are the equivalent of having caught and landed a fish. It is certain and in hand. Probable reserves are the equivalent of getting a fish on the road. The fish are technically caught but are not yet on land and may still come off the line and escape. The possible reserves are a bit like saying “there are fish somewhere in this river”. These reserves exist, but it is far from certain that an oil company will discover them, develop them and ever fully produce them.
Energy companies inform their investors how much oil and natural gas reserves they have access to through an annual reserve update. This update typically includes proven, probable, and possible reserves, and is similar to an inventory report that a retailer can provide to investors.
However, there is no legal obligation for companies to declare their 3P reserves. In recent years, oil and gas startups and exploration companies have started reporting their 3P reserves. Indeed, the third “P” (that is to say the possible reserves) can artificially inflate the reserve figures and lead to an acquisition by a larger player. The value blessings of finance in hiring a 3P reserve reason versus finance cash in an upscale exploration operation add their favor.
The liberated Consultant Resource Assessment
Many consulting corporations offer oil corporations with freelance assessments of their oil reserves. These audits are also beneficial for investors who want the assurance that a company has the reserves they claim. One of those companies is DeGolyer and MacNaughton and another is Miller and Lents, which has served the oil and gas industry with reliable upstream information and reservoir valuation for many years.
The Investors in oil and gas companies, and independent oil projects, depend on consulting firms like these to supply accurate and liberated assessments of all of a company’s reserves, including 3P reserves. Critical information includes such items as estimates of reserves and resources to be recovered from discoveries and verification of reserves and resources of hydrocarbons and minerals.
Fast Classifying Changes in Proven Reserves
Recognizing the natural resource extraction industry can be very hard because proven reserves are only one of three classes. Most of the people assume that evidenced oil and gas reserves ought to solely increase once new exploration wells are trained or drilled, resulting in the invention of recent reservoirs. In the reality, the gains and losses are resulting from classification changes are often greater than there is an increase in proven reserves from actual new discoveries. For this cause, it is needful for investors to understand a company’s probable, possible and proven reserves rather than just proven reserves.
If an investor doesn’t have data on probable reserves, proved reserves can change suddenly in a number of different situations. For an example, if a company has a large number of probable reserves and a relevant extraction technology improve, then those probable reserves are added to the proved reserves.