Posted on Tuesday, December 18th, 2007
(Podcast) Reserves growth in existing oilfields is largely illusory and will not put off the date of peak oil, according to BP’s former Chief Petroleum Engineer. Speaking at an investment conference organized by 13D Research in New York, Jeremy Gilbert argued that although reserves growth has added twice as much oil to reserves than has discovery over the past 25 years, this apparently reassuring historical trend is no guarantee of the future.
In an interview with lastoilshock.com and Global Public Media, Gilbert went on to explain how reserves growth – the tendency for reserves estimates to rise during the lifetime of an oilfield – results largely from distortions created by the conservative reporting rules of the US Securities and Exchange Commission (SEC). This he says has fostered a “myth” that reserves always grow, whereas proprietary data from major oil companies suggests they are just as likely to be revised downwards.
But even this illusory growth is unlikely to last, says Gilbert, because less and less of the world’s oil is controlled by companies that adhere to the SEC rules. In 1972, 93% of global oil production came from the International Oil Companies (IOCs – publicly traded firms like BP, Shell and Total) from fields where SEC rules were followed. But now that the National Oil Companies in OPEC and other producer nations control so much of the world’s oil, that figure has fallen to about 20%. What’s more, the IOCs are getting better at their initial reserve estimates, which limits the scope for reserves growth later on. “People assume that this [reserves growth] will continue to happen in the future”, says Gilbert, “and it won’t”.
Reserves growth is often claimed to be the result of technological advance, but Gilbert argues that new technology is usually deployed to deal with unforeseen problems, and that productivity gains tend to be cancelled out by the worsening quality of the reservoirs being exploited. Gilbert cites Forties in the North Sea and Prudhoe Bay in Alaska as two fields where the application of large amounts of technology had little lasting effect on production decline rates.
The rate of production decline at Prudhoe Bay, America’s biggest oilfield, was established soon after it peaked. New technology in the form of hydraulic fracturing allowed BP to stem the slide briefly around the time of the first Gulf War, but the decline soon reverted to trend. Source: Jeremy Gilbert
Gilbert is highly critical of a forecast from the United States Geological Survey that reserves growth could add 612 billion barrels to world reserves by 2025. The real figure he says is more likely to be just 200 billion barrels by 2020. That could mean potential annual production gains of some 2 million barrels per day, but since the decline from existing production is much greater, reserves growth can neither significantly defer peak oil nor prevent global production falling thereafter. A private meeting of oil industry experts in 2006 also found the USGS reserves growth estimate was too high, according to one executive who attended.
Jeremy Gilbert joined the oil industry 43 years ago and was BP’s Chief Petroleum Engineer from 1987 to 1990. He also has the distinction of being the last oilman out of Iran during the revolution in 1978-9, when he was forced to flee on foot. You can find the story of his narrow escape in Daniel Yergin’s The Prize.
For a comprehensive explanation of reserves growth, see chapter three of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man
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