3P Oil Reserves: What it Means, How it Works: “3P” in the context of oil reserves refers to “Proved,” “Probable,” and “Possible” reserves. These terms are used to estimate the amount of oil and gas that is available for extraction, considering various degrees of certainty:
3P Oil Reserves: What it Means, How it Works
1. Proved Reserves (1P)
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations.
2. Probable Reserves (2P)
Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.
3. Possible Reserves (3P)
Possible reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves.
How it Works
a. Exploration and Assessment
Oil companies explore new territories for oil deposits using geological surveys, seismology, and exploratory drilling. They assess the amount of oil in a discovered deposit using various technologies and methodologies.
Based on the data collected and its analysis, the reserves are classified into 1P, 2P, or 3P categories according to the level of certainty regarding their recoverability.
c. Economic and Regulatory Consideration
The categorization also considers economic viability, current technological capabilities, and existing regulatory and contractual frameworks to determine whether the extraction of these reserves is feasible.
Oil companies often report their reserves in their annual reports and to regulatory bodies. Investors and analysts use these figures to assess the company’s potential future income, the life of the company’s assets, and how the company compares to its peers.
Once reserves are categorized and deemed economically viable, production planning commences. This involves determining the methods of extraction, the technology to be used, and the timeline for development and production.
- Investment Decisions: Investors use 3P reserves as a metric to assess the potential future income and longevity of an oil company.
- Company Valuation: 3P reserves are crucial in determining the valuation of oil and gas companies.
- National Policy: For countries with large oil and gas sectors, 3P reserves are vital in shaping national energy policies and strategies.
- Global Market: On a global scale, the total 3P reserves of all countries influence global oil prices and market stability.
Challenges and Criticisms
- Accuracy: Estimating reserves is not an exact science and can be subject to errors and revisions.
- Economic Factors: Fluctuating oil prices can move reserves between categories as they become more or less economically viable to extract.
- Technological Changes: Advances in technology can also shift reserves between categories by making previously unrecoverable oil accessible.
- Environmental and Social Impact: Focusing on 3P reserves might overlook the environmental and social impacts of oil extraction.
Understanding 3P oil reserves is crucial for various stakeholders including investors, oil companies, and governments to make informed decisions related to energy policies, investment, and environmental conservation.