Possible reserve Definition / Meaning

In the oil and gas industry, a possible reserve is a category of hydrocarbon reserves that has a lower probability of commercial recovery than probable reserves. According to the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS), possible reserves are those reserves for which the analysis of geoscience and engineering data suggests they are less likely to be recoverable than probable reserves. Typically, the chance of recovering possible reserves is considered to be in the range of 10% (P10) or less, meaning there is a 90% probability that the actual recovered volume will be less than the estimate. Possible reserves represent the most uncertain category within the reserves classification and are often used to describe potential upside that requires significant additional data or technology to confirm.

Overview of Possible Reserves

Possible reserves are part of a three-tier classification system used to communicate the certainty of hydrocarbon recovery. The three categories are:

• Proved reserves (1P): High confidence, typically 90% probability (P90) that the actual recovered volume will equal or exceed the estimate.
• Probable reserves (2P): Moderate confidence, typically 50% probability (P50) that the actual recovered volume will equal or exceed the estimate. Proved plus probable equals 2P.
• Possible reserves (3P): Low confidence, typically 10% probability (P10) that the actual recovered volume will equal or exceed the estimate. Proved plus probable plus possible equals 3P.

The following table summarizes the key differences:

Classification Context

Possible reserves fall under the broader category of reserves, which are a subset of resources. In the SPE-PRMS framework, resources are classified based on the level of uncertainty and the chance of commercial development. Possible reserves are considered to be contingent on further appraisal, improved recovery techniques, or favorable economic conditions. They are not yet classified as proved or probable because the technical or commercial evidence is insufficient. For example, a reservoir may have possible reserves if it is poorly understood, if the reservoir properties are uncertain, or if the recovery method is unproven in that specific setting.

Estimation Methods

Estimating possible reserves involves using deterministic or probabilistic methods. In deterministic estimation, a single “best estimate” is made for each parameter (e.g., porosity, saturation, recovery factor) using conservative assumptions for proved, moderate for probable, and optimistic for possible. In probabilistic methods, a range of possible outcomes is modeled using Monte Carlo simulation, and the P10 value is taken as the possible reserve estimate. Key factors that influence possible reserve estimates include:

• Geological uncertainty (e.g., reservoir continuity, faulting, heterogeneity)
• Fluid properties and behavior
• Recovery mechanism (primary, secondary, tertiary)
• Well spacing and completion efficiency
• Economic factors (oil price, operating costs, taxes)

Because possible reserves have a low probability of recovery, they are often used to represent the upside potential in a field. However, they should not be included in a company’s proved reserves for financial reporting under SEC rules unless specific conditions are met.

Reporting Standards

Different regulatory bodies have varying requirements for reporting possible reserves. The U.S. Securities and Exchange Commission (SEC) allows disclosure of possible reserves only if they are accompanied by a clear explanation of the uncertainty and are not included in the proved reserves total. The SPE-PRMS provides a global standard that many companies follow for internal and external reporting. In practice, possible reserves are often reported as part of a company’s “3P” (proved + probable + possible) total, but investors and analysts focus primarily on proved (1P) and proved plus probable (2P) numbers for valuation.

Usage Example

In a reservoir evaluation report, an engineer might state: “The field’s possible reserves are estimated at 50 million barrels of oil equivalent, based on optimistic assumptions about the extension of the reservoir into an undrilled fault block. However, further appraisal drilling is required to confirm the presence of hydrocarbons and the connectivity of the structure.”

Importance in the Industry

Possible reserves play a critical role in long-term planning and portfolio management. They represent the potential for future growth through exploration and appraisal. Companies use possible reserve estimates to prioritize drilling locations, evaluate farm-in opportunities, and assess the value of undeveloped acreage. For investors, understanding the distinction between proved, probable, and possible reserves is essential for evaluating a company’s asset base and risk profile. Over-reliance on possible reserves can lead to overvaluation, while ignoring them may miss significant upside.

In summary, possible reserves are a vital but highly uncertain component of a company’s resource base. They require careful technical evaluation and transparent communication to stakeholders.