Is USGS 2000 Assessment Reliable?

by Jean Laherrere
e-mail: jean.laherrere@wanadoo.fr
May 2, 2000

published on the cyberconference of the WEC on May 19, 2000

http://energyresource2000.com

The United States Geological Survey has made periodic assessments of the world’s conventional oil and gas endowment since the oil shocks of the 1970s. Its last study was presented at the World Petroleum Congress in Stavanger in 1994 (1) and the next is due to be presented in Calgary in June of this year. The full study is awaited but indications of its contents are becoming available through a press release (2) issued on the eve of a critical OPEC meeting, on the Internet (3) and in the Oil & Gas Journal (4). These indications suggest that there are serious flaws in the study. It is a matter of grave concern because the world is now approaching the peak of conventional oil production. It is important therefore that the claims of the USGS be subject to close scrutiny, lest they be given an undeserved credibility in the formulation of government policy. Demand and price are influenced by the belief in the availability of future oil and gas.

General Comments

The study gives estimates for the undiscovered amounts of conventional oil, gas and Natural Gas Liquids (NGL), using a probabilistic approach, but the United States is treated differently from the rest of the world. For the United States, maxi ( P95), mini ( P5) and mean cases are quoted, whereas for the rest of the world, P95, P50, P5 (5) and mean cases are given by region, being in turn aggregated in a Monte Carlo simulation. Oil and NGL are combined for the USA, but distinguished elsewhere.

The proposed mean value of undiscovered liquids is 939 Gb (billion barrels) for the world’s Undiscovered, made up of 649 Gb oil, 207 Gb NGL outside the USA, and 83 Gb for the USA. A further 730 Gb is proposed for what is termed Reserve Growth, being made up of 612 Gb oil, 42 Gb NGL, and 76 for the USA.

It is claimed that the numbers relate to what may be discovered and added to the reserve base between 1996 and 2025, taking into account economic and technological factors (6). Such a claim of adding more than 50 Gb/a is however very difficult to accept in relation to the past discovery trend, which has fallen from a peak in the 1960s to less 10 Gb a year for the 1990s (7). The USGS estimate implies a five-fold increase in discovery rate and reserve addition, for which no evidence is presented. Such an improvement in performance is in fact utterly implausible, given the great technological achievements of the industry over the past twenty years, the worldwide search, and the deliberate effort to find the largest remaining prospects. It conflicts with the industry viewpoint as expressed by the CEO for Arco who commented (8) "We've embarked on the beginning of the Last Days of the Age of Oil".

Some of the many points of detail, on which the study displays flawed judgment and procedure, are discussed below.

Aggregation of data

It is absurd to imagine that every field, basin or country will find only the minimum estimate. The sum of the minimum values (such as P95) will give a number smaller than the minimum value of the total. Statistical theory requires that only mean probability values may be summed. We may add in passing that most of reports on the world’s Reserves add the Proved Reserves of each country to get the total, which is incorrect. Proved Reserves are defined as having a P90 probability under the rules of industry authority (9), different from the P95 (mini) used by the USGS.

Applying the Monte Carlo procedure gives a Low Case for the eight regions listed in the study of 339 Gb and a High Case of 1107 Gb, compared respectively with 179 Gb and 1289 Gb as derived from simple addition. Only the mean value of 649 Gb is the same under both calculations. If the non-US values are added using the Monte Carlo procedure, which is indeed the right way to do it, why is it not applied to the world when adding the USA ? The failure to use a consistent method means that the assessment of P95 and P5 values for the world as a whole is fallacious.

The Monte Carlo method is used also for adding associated gas and non-associated gas, but the total value for P95 for the non-US is given as 2298 Tcf when the sum is 2312 Tcf . It is another flawed calculation as the total should clearly be higher than 2312 Tcf.

There are domestic reasons for treating the United States differently from the rest of the world, including the rules of the Security and Exchange Commission (SEC) and the reluctance of most US  experts  to use the probabilistic approach, which was rejected by the Society of Petroleum Engineers (SPE) until recently, but it does not facilitate the analysis.

Furthermore, it is misleading to quote the values to an accuracy of more than two digits, given the wide range of the estimates and the evident high level of uncertainty.

Distribution of probability

The average ratio of the USGS Undiscovered values are by region:

Region

P95/Mean

P50/Mean

P5/Mean

Oil Gb

0.27

0.93

1.99

Gas (associated)

0.24

0.89

2.15

Gas (non-associated)

0.25

0.92

2.06

NGL (associated)

0.22

0.86

2.27

NGL (non-associated)

0.23

0.89

2.18

Average

0.24

0.90

2.13

Gas is shown as having almost the same probability distribution as oil. Yet, the North America Region (Canada and Mexico, excluding the USA) has an average approximately half that of the other regions.for the P95/mean. There is no explanation for this apparent anomaly.

North America Region

P95/Mean

P50/Mean

P5/Mean

Oil Gb

0.10

1.00

2.2

Gas (associated)

0.13

0.93

2.3

Gas (non-associated)

0.14

0.97

2.2

NGL (associated)

0.12

0.89

2.4

NGL (non-associated)

0.10

0.92

2.4

Average

0.12

0.94

2.3

It is difficult to understand the extreme ranges shown for Mexico and Canada. It suggests a motive to exaggerate North American quantities for diplomatic reasons in relation to OPEC, meaning that the forecast is not a reliable basis for determining general energy policy

P95/Mean

P50/Mean

P5/Mean

Regions : undiscovered

0.24

0.90

2.13

total non-US : undiscovered

0.48

0.92

1.79

US : undiscovered

0.79

1.27

World : undiscovered

0.51

1.72

non-US : field growth

0.31

1

1.68

See in Annex 1: the log-normal distribution

It is curious that the distributions of the Undiscovered, which are similar in seven regions, should be so different from those of North America, especially since most of the US Undiscovered presumably lies in mature basins. North America also differs markedly from the aggregated regions and the world as a whole. It is evident that the study (as the previous studies by Masters ) has been based more on subjective intuitive geological judgment (termed the Delphi approach), without taking into account the study and the extrapolation of past results. It moreover displays a certain national bias by supposing that the endowment of oil in Nature is in some way different in North America.

As it is well known, US reserves are reported on financial criteria to meet the rules of the Securities and Exchange Commission, whereas those in the rest of the world are based more on a technical assessment, with proper recognition of the concept of probability. In general, a company has one set of values for internal technical work, and another for external purposes. Thus, the first step in such a study should have been to adjust the Proved Reserves of the United States and Canada so as to match the Proved & Probable values used in the rest of the world.

Comparison with earlier USGS studies

The previous USGS study by C.D.Masters in 1994, which was given with more data in 1998 (10), was a much more serious contribution, insofar as the methodology was explained and the details by basin given. Masters, who demonstrated a good understanding of the subject, provided in addition the mode value, which is the peak of the density of probability curve, or in other words, the most likely case. Comparing the two studies in the following terms shows that the probability distribution of the two studies is similar. The method is the same.

USGS 1994/98

USGS 2000

P95/Mean

P5/mean

P95/Mean

P5/Mean

Non-US

0.4

2.0

0.5

1.8

US

0.8

1.3

0.8

1.3

World

0.5

1.7

0.5

1.7

Both used a Delphi method based on an iterative assessment by an un-named panel of experts, who were asked to express their views of the range and reach a consensus. It may well explain the extraordinarily high values for the P5 case, lying far outside any reasonable extrapolation of the past. The high case in turn may have influenced the mean and median values. It can be said that studying cumulative discovery over time or against wildcats (method used in the North Sea by the UKOOA), and applying modern methods of size distribution analysis, along with other statistical techniques, will give better and more convincing results than a Delphi committee expressing opinions.

We may compare the two studies as follows:

Undiscovered oil in Gb

P95

Mean

P5

USGS 1998

292

583

1005

USGS 2000 Non-US

334

649

1107

In greater detail, the comparison of the Mean value for oil is:

USGS 2000

USGS 1998

2 Middle East & North Africa

230

157

1 FSU

116

131

6 C&S America

105

56

7 Sub-Saharan Africa & Antarctica

72

35

5 North America

70

67

3 Asia Pacific

30

66

4 Europe

22

27

8 South Asia

4

5

US with NGL

83

44+12

It is entirely possible that the Middle East estimates may eventually prove to be correct, but given the time frame, they have to be tempered by the low level of exploration both in recent years and probably also in the future. The USGS evidently gives weight to a map of uncertain authenticity that shows a colossal potential in Iraq that has been circulating in the industry for some time, and is generally dismissed as being unlikely. The estimates for the FSU, Asia and Europe have all decreased, possibly reflecting the three years that have elapsed between the studies.

A comparison of the distribution for North America (Canada and Mexico, excluding the USA), which is so very different from the other regions, is given below:

Oil Gb

Cumulative

Identified

Undiscovered Resources

USGS 1998

Production

Reserves

P95

Mode

P5

Mean

Canada

16

11

13.5

26.1

55

31.4

Mexico

19.5

42

14.4

24.1

72.2

35.5

USGS 2000

Canada &Mexico

6.8

70.8

157.5

70.5

To propose a new range from 7 Gb to 158 Gb for two well known, and in the case of Canada, very mature, countries is utterly implausible. No credence at all can be given to the P5 estimates. The earlier study of Masters was much more realistic, albeit itself optimistic. The marked decrease in the P95 may reflect the second downgrading in Mexico (11) (12), as Mexico reduced its reserves by 20 Gb in 1999 (13).

The mean value is about the same in both studies, changing from 67 Gb to 70 Gb. In annex 2 & 3, an estimate for the main basins of Canada and Mexico using the extrapolation of the past discoveries gives values two or three times less than the USGS values.

Discrepancies for cumulative production and remaining reserves

The Cumulative Production for combined oil and NGL in the United States is reported at 171 Gb as of end 1995, whereas the industry database gives a value of 205 Gb. Other sources show that the Cumulative Production of oil and NGL is respectively around 170 Gb and 30 Gb, suggesting that what the USGS reports as oil and NGL is in fact oil only. The discrepancies for US Cumulative Production for oil and gas and Remaining Reserves vary from -9% to +22%, compared with the industry database

Cumulative Production end 1995

Remaining Reserves, end 1995

Liquids Gb

Gas Tcf

Liquids Gb

Gas Tcf

US

USGS 2000

171

854

32

172

Industry database

209

857

30

156

Discrepancy %

22

0

-6

-9

World

USGS 2000

717

1752

959

4793

Industry database

807

2200

960

5083

Discrepancy %

13

26

0

6

For the world as a whole, the discrepancy varies from 0% to 26%. It is remarkable that the USGS has failed to comment on these major differences between their values and those of the industry database for what has been discovered so far, which clearly has an impact on what remains to discover in the future. One of the difficulties is to know how the boundary between conventional and unconventional hydrocarbons has been drawn. The USGS may have definitions very different from those of the industry.

Field growth

As already pointed out, it is important to remember that the USA and Canada report Proved reserves to meet SEC rules. They accordingly "grow" over time to something close to their Mean value.

In this connection, it is worth inquiring into the practice of reporting both in the USA and elsewhere. In principle, US companies are expected to follow industry guidelines that define Proved (described as having "reasonable certainty" in the SEC rules) as having a 90% probability of occurrence, but in practice it appears that their estimates come closer to the Mode value. For the last 20 years, the amount of positive revisions reported by the US Department of Energy were double the negative values, meaning that the original estimates had a probability of around 66%. That is close to the Mode value, which in fact represents what the engineers consider the most likely.

The huge "field growth" of the United States is clearly a reporting phenomenon, as only 6% of the additions over the past twenty years have come from new discoveries. The rest-of-the-world reports Proved & Probable estimates, because the industry has a greater need to know what the fields will actually deliver when they plan costly offshore facilities or pipelines to remote areas.

It is worth discussing this critical issue in greater detail. The SEC rules were formulated long ago when most US production was onshore, and required that reserves for financial purposes were restricted to those being drained by a producing well.. Such onshore fields could be placed on production as soon as the first well was drilled, meaning that the reserves grew as the field was drilled up over time, in some cases tapping subsidiary reservoirs or new pools at greater or lesser depth or in the immediate vicinity. In some cases, infill drilling was also undertaken changing the reserve estimates.

The situation is different for offshore United States fields, because the options for placing additional facilities to drain subsidiary late stage traps and reservoirs were clearly less because of higher economic constraints than is the case onshore. Thus whereas the initial reported reserves onshore understated the eventual recovery by a factor of 6-7, offshore the factor is no more than about 4.

In the rest of the world, the reserves of a field are normally reported when it goes into production, the earlier estimates being held confidential by the company. Host governments take an interest to ensure that good oilfield practices are used to maximize recovery, and in some cases revenue. The companies accordingly have to compromise in their reporting between their general desire to under-report and the demands of the host government. For these reasons, more valid estimates are reported, although still often as much as half what the field is eventually found to deliver.

It is evident therefore that most so-called reserve growth is a reporting phenomenon and not due to technology as is so often claimed. That is not to dismiss technology as irrlevant - far from it. Technology plays a vital role in increasing the success ratio in exploration, reducing costs, the lead times between discovery and the onset of production, and permitting the development of small satellites.

The scope for Reserve Growth, whether genuine or due to reporting practices, certainly reduces over time as the field approaches exhaustion and eventual abandonment. It may be that the USGS adds a reserve growth factor to its Undiscovered estimates on the false belief that technology, even yet to be developed technology, will inevitably increase the eventual size of the discovery. If so, it has failed to realise that in practice the reserve estimates made prior to the drilling of a prospect are almost always much higher than those initially attributed to the discovery if it is success.

Analysis of the decline of the larger US fields is instructive.

It shows that new technology has had a negligible impact on the reserves of, for example, the East Texas Field, where the decline increased from 5% to 10% a year in 1990, and where the estimate of ultimate recovery was reduced from 6 Gb to 5.4 Gb in 1992, see Figure1.

Figure 1:

The Prudhoe Bay Field in Alaska tells the same story. The forecast by the Alaska Department of Natural Resources up to 2010 shows no improvement in ultimate recovery, see Figure 2. The Oil & Gas Journal estimates 13 Gb ultimate recovery, which is close to the 12.7 Gb indicated by decline analysis.

Figure 2:

In short, the reserve growth claimed by the USGS is excessive. Other studies, as for example that endorsed by the International Energy Agency in its World Energy Outlook 1998, contemplate a reserve growth of about 200 Gb by 2025. To claim 612 Gb of field growth in the rest-of-the-world, representing 44% of the 1359 Gb discovered, is absolutely unrealistic, because the reserves have been reported more accurately in the first place.

We should also not overlook what has been described as "political" reserves, including the 300 Gb that certain OPEC countries added in the late 1980s as they vied for production quota, which was partly based on reserves. In part, such revisions corrected under-reporting by the industry prior to expropriation, but in any event the revisions, whatever the correct number should be, have to be backdated to the discovery of the fields containing them.

As mentioned above, reserve growth is often attributed to the application of new technology, such as 3D seismic or horizontal drilling, forgetting that these technologies are no longer new, having been routinely applied to most modern fields. SheikYamani, for example, claims (14) that the recovery factor in Saudi fields will increase to 30% to 45%, giving a huge increase in reserves. He evidently has not realised that the estimated recovery factor in Ghawar, the world’s largest oilfield, was estimated at 45%, already fifteen years ago, and that the field is today being produced with horizontal wells, based on high quality 3D seismic surveys. Its recovery factor is now 60%, with an Ultimate Recovery of 115 Gb.

Furthermore, the present USGS study contradicts Masters in the previous studies who rightly rejected significant field growth outside the USA in the following terms:

"we assume that many other countries are, in fact, reporting, effectively, an Identified Reserve (Proved + Probable + Possible Reserves) or some major part thereof. In particular, this is considered to be true for all OPEC countries, the Former Soviet Union (FSU), China, and Mexico. The sum total of these major producers accounts for more than 90 per cent of world oil reserves; therefore, we have some confidence that the world value herein reported for Identified Reserves is a reasonable maximum value for known fields and greatly exceeds reserves developed for production."

We may also note in passing that another US government agency, the Minerals Management Service forecasts (15) that the gas production of the Gulf of Mexico will peak in 2005 and then decline, evidently rejecting the USGS claims of reserve growth.

In short, the field growth claimed by the USGS in its present study is not supported by the data.

Ultimate values

The detail of the Ultimate (Mean) values are as follows

Mean

Oil+NGL

Gas

Non-US

Gb

Tcf

Cumulative Production (end 95)

546

898

Remaining Reserves (end 95)

927

4621

"Field growth"

654

3305

Undiscovered

856

4669

Non-US Ultimate

2983

13493

US

Cumulative Production (end 95)

171

854

Remaining Reserves (end 95)

32

172

"Field growth"

76

355

Undiscovered

83

527

US Ultimate

362

1908

World

Cumulative Production (end 95)

717

1752

Remaining Reserves (end 95)

959

4793

"Field growth"

730

3660

Undiscovered

939

5196

Ultimate

3345

15401

The US Ultimate is quoted as Oil and NGL combined, whereas NGL is separated in the rest of the world. The proportion of NGL to total liquids in the USA is approximately 25%, whereas it is only 5% elsewhere. Natural Gas liquids comprise Condensate, which condenses at the wellhead separator, and such additional liquids as may be extracted from gas by processing.

There is a huge difference between in the two USGS studies in the estimate of the worldUltimate, which for oil increases from 2.3 Tb to 3.3 Tb (trillion barrels); and for gas from 12 Pcf to 15 Pcf (16). This increase is out of line with other estimates made over the past thirty years (figure 3), which show a gradual leveling off.

Figure 3 :

According to this USGS study, only 50% of the oil has been discovered, with 22% and 28% yet to come from so-called Reserve Growth and new discovery. It contrasts with a statement by, for example, Salameh (2000) of the World Bank, who declares that almost 90% ot the world’s conventional oil has been found. 

-Assessment of FSU

The assessment of the former Soviet Union is burdened by the fact that the Soviets, somewhat like the USGS, considered abstract geological potential, ignoring the technological, economic and time constraints, as was later confirmed in 1993 by the Russian expert, Khalimov (17). Using these inflated numbers, the fractal shows 2500 fields of over 1 Mb of reserves, with a total of 264 Gb. A better approach in this case is to superimpose reported annual discoveries and annual production with a time shift to give a close fit, which in this case turned out to be fifteen years (Figure 4).

Figure 4:

Oil production peaked in 1988 a 4.5 Gb/a, with a Cumulative Production of 100 Gb. Assuming that peak corresponds with the midpoint of depletion, it means that the likely Ultimate is around 200 Gb, less than the 260 Gb reported discovered by the Soviets. It suggests that the discoveries should be reduced to two-thirds of their reported size to obtain a good estimate of their Proved & Probable value.

The parabolic fractal, based on the inflated numbers, (Figure 5) shows that Samotlor and Romashkino are Kings and that the larger fields were discovered before 1980. The yet-in-the-ground Ultimate is 10 000 fields of >1Mb, holding 330 Gb. The indicated 65 Gb Undiscovered has to be reduced to two-thirds for the reasons explained, namely to at most 50 Gb. But time and activity constraints will reduce this value to around 40 Gb.

Figure 5:

Plotting cumulative discovery over time is not useful because of the impact of the fall of Communism and the resulting slowdown in exploration during the 1990s. So, a plot of cumulative discovery against cumulative wildcats has been used to give a more valid picture (figure 6).

The curve is now almost flat, although offshore drilling with better equipments (as in Caspian) may yet open a new chapter.

Figure 6:

Decline analysis confirms the exaggeration of reserves under the Soviet system. In the case of the Samotlor Field, decline analysis (figure 7) gives an ultimate value of 20 Gb, even including the planned drilling of 4500 horizontal wells by Halliburton, compared with a reported value of 24 Gb.

Figure 7:

Masters’ forecast of the Undiscovered for the Former Soviet Union was of 131 Gb, which has been reduced to 116 Gb in the new USGS study. That is still more than double the 40-50 Gb indicated by the above analysis. There might also be case for proposing negative reserve growth to correct the "strongly exaggerated" present reserves. Field growth is not always positive!

-Conclusions

The foregoing discussion demonstrates that the new USGS study has failed to respect the evidence of past discovery both in terms of amounts and rates. Many commentators have drawn attention to the remarkable technological achievements of the industry over the past few years. The resulting performance in terms of discovery is thus representative of what is achievable in the real world. It is absurd for the USGS to claim that it is about to be revolutionised to deliver vastly increased amounts of oil by new discovery and reserve growth over the next twenty-five years.

The new study was awaited with anticipation in the hope that it would be a definitive assessment, based on a very through evaluation of every petroleum system, but the result has been a great disappointment. It is replete with contradictions and downright errors.

In short, the new USGS report is misleading. It is also unrepresentative of the normal standards of this highly respected organisation.

One is left to wonder if there is not a hidden agenda, given current US concerns regarding oil supply, price, and growing OPEC control. The timing of the USGS press release on the eve of a critical OPEC meeting would certainly be consistent with such an interpretation.

REFERENCES

Bourdaire J.M., R.J.Byramjee, R.Pattinson 1985, Reserve assessment under uncertainty -a new approach; Oil & Gas Journal June 10, p135-140

Bowlin M.R. 1999, Clean Energy: Preparing Today for Tomorrow's Challenges; CERA February 9,

Kelly A 2000 "U.S. natgas suppliers seen facing tough challenge April 25, Reuters-

Khalimov E.M. 1993, Classification of oil reserves and resources in the Former Soviet Union; AAPG vol 77/9 Sept p1636

Khalimov E.M., M.V.Feign 1980, The principles of classification and oil resources estimation WPC Bucharest 1979, Heyden London p263-268

Laherrere J. 1994 ,Published figures and political reserves; World Oil ,Jan p33

Laherrère J.H. 1999 Reserve growth: technological progress, or bad reporting and bad arithmetic? Geopolitics of Energy 2/4 April p7-16 see http://dieoff.com/page176.htm ;

Laherrère J.H. 1999 Assessing the oil and gas future production and the end of cheap oil ? CSEG Calgary April 6, http://dieoff.com/page179.htm

Masters C.D. 1994, World Petroleum analysis and assessment; Wld. Petrol. Congr. Stavanger, with subsequent minor revisions, partly on the USGS website

Masters C.D.,, Root D.H., and Turner R.M., 1998, World Conventional Crude Oil and Natural Gas: Identified Reserves, Undiscovered Resources and Futures; U. S. Geological Survey Open-File Report 98-468

Oil and Gas Journal 2000, World resource estimate shows more liquids, slightly less gas . by Petzet A. April 17 and The oil resource grows, April 10

Salameh M.G. 2000, Can the oil price remain high? Petroleum Review April p42-44;

USGS http://energy.er.usgs.gov/products/openfile/OFR98-468 World Undiscovered Assessment Results Summary http://energy.cr.usgs.gov:8080/energy/WorldEnergy/weppdf/sumworld.xls

Yergin D., 1999, Interview September 2, 1999 Daniel Yergin, author "The Prize"; Colin Campbell, author of "The Coming Oil Crisis" and Sheikh Ahmed Zaki Yamani, of the Centre for Global Energy Studies on LateLine, Australian Broadcasting Corporation, September 2, 1999: http://www.abc.net.au/lateline/stories/s49069.htm

Annex 1: the log-normal distribution

The most commonly used probability distribution is the log-normal distribution (18), and we may apply it to the USGS analysis so as to compare the results, recognizing the following relationships.

If mn is the mean and sn the standard deviation of the normal associated distribution (19) the following values of the log-normal distribution are:

mini = P95 = EXP (mn -1.65 sn) ;

median = P50= EXP (mn) ;

maxi = P5 = EXP (mn +1.65 sn) ;

mean = EXP (mn +0.5 sn * sn) ; and

mode = EXP (mn - sn * sn)

Combining the above equations gives the following ratios, which are independent of mn:

P95/mean EXP(-1.65 sn -0.5 sn * sn) ;

P50/mean EXP (-0.5 sn * sn) ;

P5/mean EXP(1.65 sn -0.5 sn * sn) ;

mode/mean EXP(-1.5 sn * sn) ;

P95/ P5 EXP(-3.3 sn); and

mini+mode+maxi EXP(mn+0.57 sn * sn) 3 mean

Parameter sn

0.3

0.4

0.5

0.6

0.7

0.8

P95/mean

0.6

0.5

0.4

0.3

0.25

0.2

P50/mean

0.96

0.92

0.88

0.84

0.78

0.73

P5/mean

1.6

1.8

2

2.2

2.5

2.7

Mode/mean

0.9

0.8

0.7

0.6

0.5

0.4

P5/ P95

3

4

5

7

10

14

Mean/(mini+ mode+maxi)/3

0.99

0.98

0.97

0.96

0.93

0.91

It is possible to compute the parameters sn and mn from only P95/ P5 and P50 as follows:

sn = -(LN ( P95/ P5))/3,3

mn = LN( P50)

It means that the log-normal distribution depends only on P95/ P5 and P50, and other values, such as the mean and the mode, may be computed from them. In the same way, the mode and the median can be computed, if P95, mean and P5 are known.

The USGS claims that it uses a truncated log-normal distribution. But it evidently confuses the natural log-normal distribution of the total notional amounts in the ground with those that are recoverable subject to economic constraints. A better approach would have been to distinguish the two categories.

In fact, we find that the probability distributions in the report are far from log-normal. Comparing the USGS values with a log-normal distribution based on the quoted values for P95, P50, mean and P5 gives the following discrepancies

North America: If the mean is correct, P50 should be 33 Gb, not 71 Gb; or if P50 is correct, the mean should be 112 Gb, not 71 Gb.

-Annex 2: Assessment of the Western Canada Sedimentary Basin

We may demonstrate with some examples the methodology that could have been used to properly incorporate the evidence from past discovery and respect the technological achievements of the industry and that the results are much lower than the USGS claims.

The Western Canada Sedimentary Basin lies in the provinces of Alberta, Saskatchewan and British Columbia and extends into contiguous parts of the United States. It is termed the Alberta-Williston-Anderson Basin by Masters, and the Alberta-Williston Basin in the present USGS study.

The potential of the basin is assessed on the basis of a parabolic fractal distribution and a creaming curve (20) using Canadian data, which follows the US practice of reporting mainly Proved Reserves. It is accordingly necessary to make an adjustment (average field growth curve) to obtain Proved & Probable values, as used in the rest of the world.

The plot shows clearly that the larger fields were found more than thirty years ago, and that the subsequent discoveries have been smaller than 60 Mb The parabolic fractal estimates the total resource in the ground, down to the smallest accumulation in the pore space, and a cutoff has to be applied to remove those accumulations that are too small to be economic under any conceivable scenario. The record indicates that 900 oilfields of over 0.06 Mb have been found, and the fractal shows a total of 4000 notional accumulations, which reduce to about 1500 after application of the cutoff. In short, 20 Gb have been found out of a total of 23.3 Gb leaving 3.3 Gb yet-to-find. The USGS, perhaps advisedly, prefers the term Undiscovered to Yet-to-Find : it is evident that much of its Undiscovered will not in practice be found, least of all in the time span it indicates.

Field data

" In-the-Ground "

Yet-to-Find

Ultimate

Ultimate

Size k.m3

Number

M.m3

Number

Number

Number

M.m3

>10 000

65

2229

3

3

68

2430

>1000

313

3049

68

68

380

3400

>100

652

3184

848

568

1220

3650

>10

902

3193

4098

1568

2470

3700

All

990

3194

Figure A2-1:

The creaming curve (Figure A2-2) shows the discoveries, as estimated both with backdated Proved Reserves and Proved & Probable values. The Proved Reserve plot gives an Ultimate of 25 Gb with a Yet-to-Find of 5 Gb by 2040. The Proved & Probable plot gives an Ultimate of 30 Gb with 7.4 Gb Yet-to-Find, also by 2040. The USGS study gives an Ultimate of 25 Gb to be reached by 2025, in this case, under-stating the potential.

Figure A2-2 :

 

The Undiscovered for the Western Canada Sedimentary Basin (WCSB) (called the Alberta Basin in USGS study) may be estimated from the extrapolation of the field size distribution and the creaming curve at around 2.4 Gb with field growth 0.6 Gb. Masters gives 6 Gb for the Undiscovered, namely. 2.5 times more. USGS 2000 is still higher than Masters, who was himself optimistic in relation to the evidence of the data.

-Annex 3: Assessment of Mexico

The 1994 USGS study gave an Undiscovered for Canada and Mexico of respectively 31.4 Gb and 35.4 Gb, making a total of 67 Gb for the two countries. The details of latest USGS study are not known but the two countries together are shown to have an Undiscovered of 70 Gb of oil and 9 Gb of NGL, which is still higher than Masters 1994 estimate that was itself already high, based on past results.

Masters in 1998 assessed the undiscovered potential of Mexico’s basins as follows: Campeche (15 Gb), Reforma Shelf (15.9 Gb). The latest USGS study has a different classification, recognising only the Campeche-Sigsbe salt Basin and the Yucatan Platform.

We have assessed together the Campeche and Reforma Basins, as they belong to the same Petroleum System. The total discovered amounts to 46 Gb.

Figure A3-1:

Again, the larger fields were discovered early, before 1980. The Cantarell Field is a so called King, standing head and shoulders above the next largest in the distribution. The fractal indicates an ultimate in the ground of 800 fields over 1 Mb, holding a total of 61 Gb. Present discoveries stand at 255 fields with over 1 Mb each totaling 48 Gb.

The creaming curves seem to give better results. The extrapolation to 2025 gives about 55 Gb leaving 7 Gb yet to find.

Figure A3-2:

Masters estimated an Undiscovered potential of 32 Gb compared with the above estimate of 7 Gb, to be found before 2025, and a total potential of around 12 Gb.

Again, the estimates based on the size fractal and discovery plots are much lower than that proposed by the USGS on the strength of its Delphi method, where geological intuition is given more weight than actual data.

Notes

  1. Masters C.D. 1994, World Petroleum analysis and assessment; Wld. Petrol. Congr. Stavanger, with subsequent minor revisions, partly on the USGS website
  2. Issued March 22nd 2000
  3. World Undiscovered Assessment Results Summary http://energy.cr.usgs.gov:8080/energy/WorldEnergy/weppdf/sumworld.xls
  4. Oil and Gas Journal 2000 "World resource estimate shows more liquids, slightly less gas" by Petzet A. April 17 and "The oil resource grows" April 10
  5. These terms are wrongly designated as F95, F50,F5: they should be P95, P50 and P50 because they refer to Probability and not to fractile or frequency
  6. OGJ April 17, 2000
  7. Salameh M.G. 2000 "Can the oil price remain high?" Petroleum Review April p42-44; Laherrère J.H. 1999 "Reserve growth: technological progress, or bad reporting and bad arithmetic?" Geopolitics of Energy 22/4 April p7-16 see http://dieoff.com/page176.htm ;
  8. Bowlin M.R. 1999 "Clean Energy: Preparing Today for Tomorrow's Challenges" CERA February 9,
  9. The joint committee of the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), and the American Association of Petroleum Geologists (AAPG)
  10. Masters C.D.,, Root D.H., and Turner R.M. "World Conventional Crude Oil and Natural Gas: Identified Reserves, Undiscovered Resources and Futures" U. S. Geological Survey Open-File Report 98-468 http://energy.er.usgs.gov/products/openfile/OFR98-468
  11. Laherrere J. 1994 "Published figures and political reserves" World Oil Jan p33
  12. Ten years ago, the USGS pressed Pemex to decrease sharply their estimates of about 20 Gb Proved in the Chicontepec heavy oilfield. It has 100 Gb in place but produces only 4000 b/d from 200 wells. Pemex finally acceded when the NAFTA negotiations started.
  13. Oil & Gas Journal reserve data, Dec. 20 1999.
  14. Interview September 2, 1999 Daniel Yergin, author "The Prize"; Colin Campbell, author of "The Coming Oil Crisis" and Sheikh Ahmed Zaki Yamani, of the Centre for Global Energy Studies on LateLine, Australian Broadcasting Corporation, September 2, 1999: http://www.abc.net.au/lateline/stories/s49069.htm
  15. Kelly A 2000 "U.S. natgas suppliers seen facing tough challenge" April 25, Reuters-
  16. Tb = trillion or tera or 1012 and Pcf = 1000 Tcf , or penta or 1015
  17. He wrote: " The resource base [of the former Soviet Union] appeared to be strongly exaggerated due to inclusion of reserves and resources that are neither reliable nor technologically nor economically viable" He incidentally presented and explained this Russian classification to the WPC in 1979.
  18. Bourdaire J.M., R.J.Byramjee, R.Pattinson 1985 "Reserve assessment under uncertainty -a new approach" Oil & Gas Journal June 10, p135-140
  19. (mn is different from the mean of the lognormal distribution)
  20. Laherrère J.H. 1999 "Assessing the oil and gas future production and the end of cheap oil ?" CSEG Calgary April 6, http://dieoff.com/page179.htm
  21. See also Laherrère's comments on John Wood's presentation of USGS 2000, December 2000.