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On Jan. 9, the Royal Dutch/Shell Group of Companies (Shell) announced a 20
percent reduction in its recoverable hydrocarbon reserves. The company assured
investors and regulators that there is no difference in the volume of oil and
gas in place, saying that development has been slower than originally thought.
Nevertheless, the significant downgrade is raising questions as to the legitimacy
of the earlier estimates and whether there should be an international and industry-wide
standard for reserves classification; currently, there is none.
“Reserve” refers to the amount of oil or gas that has been discovered
and that can be extracted profitably with existing technology under present
economic conditions. Following an internal review of its reserves late last
year, Shell recategorized approximately 3.9 billion barrels of oil and the natural
gas equivalent, representing the company’s largest recategorization of
reserves ever.
According to company executives, more than 90 percent of the recategorization
is a reduction in the “proved undeveloped” category, with the remaining
10 percent in the “proved developed” category. And much of the recategorized
reserves were in Australia and Nigeria. The company said in a press release
that “most of these reserves will be re-booked in the proved category over
time as field developments mature.”
Under Shell’s system, “proved undeveloped” is differentiated
from “proved developed” based on whether or not the infrastructure
is in place to extract the hydrocarbons, says Peter McCabe, a geologist with
the U.S. Geological Survey (USGS).
“Unfortunately, there are many disparate ways of calculating reserves and
resources,” he says. “Definitions vary between companies, between
countries, and even between organizations within a country.”
Together, the Society of Petroleum Engineers (SPE), World Petroleum Congress
(WPC) and the American Association of Petroleum Geologists (AAPG) have developed
three primary categories of their own for reserves. They define “proved”
reserves as the amount of oil and gas believed to be recoverable with “reasonable
certainty” (90 percent probability), based on current economic conditions
and technology. “Probable” reserves indicate additional resources
more likely to be recovered than not (50 percent probability). And “possible”
reserves are less certain to be recovered (10 percent probability).
The proved reserves represent an estimate based on geology, engineering and
economics, McCabe says. It’s all “risk management,” says Robert
Laing, a geophysicist with Chevron/Texaco. Recategorization of reserves, such
as with Shell, however, should not affect the market for petroleum geology,
Laing says.
Indeed, reclassifications happen frequently for various reasons, says David
Abbott Jr., a consulting geologist in Denver who spent many years as a geologist
with the U.S. Securities and Exchange Commission (SEC). “Changing oil and
gas prices can make a big difference for some projects,” he says. And some
geologic or engineering parameters may only become apparent after the first
few wells are drilled and produced.
McCabe adds that reserve estimates may also be recategorized because initial
estimates were based on poor geologic interpretations, overly optimistic calculations
of engineering costs, or unreal expectations of market demand. “One would
require a lot of knowledge about the internal decision-making process in a company
to know the full story,” he says.
Still, in the wake of the Shell recategorization, industry insiders are speculating
whether or not the SEC might now mandate independent reserves audits, greater
transparency in reporting of reserves, or industry-wide standardization of classification
schedules. The SEC has guidelines for companies reporting proved reserves and
allows for reclassification of proved reserves. The agency has not yet announced
whether any changes to the system will be made nationally.
On the international stage, a committee of the United Nations has been working
for seven years to address reserve and resource terminology. In 1997, the U.N.
Economic and Social Council passed a “framework” classification standard
for reserves and resources of solid fuels and minerals commodities. And in 2002,
an ad hoc committee formed to further classify world energy reserves and resources.
“The ultimate goal is to have a harmonized terminology and definitions
for each category of reserves and resources to permit international comparisons
and facilitate communication, valuation and trading,” says Thomas Ahlbrandt,
chief of the World Energy Project at USGS and vice chairman of the ad hoc committee.
For petroleum, the committee has already developed a classification system that
incorporates the SPE/WPC/AAPG reserve and resource classification, which it
has presented at meetings throughout the world. It remains to be seen, however,
if an international classification standard will be adopted and followed, Ahlbrandt
says.
Still, the sticky business of classifying oil reserves continues. “It’s
all a matter of managing uncertainty,” Laing says. “We never know
what we will find until we drill the well.”
Megan Sever
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Contrary to popular belief, clays are not just the orange dirt that mars household
halls in wet weather. In addition to the more obvious brick, pottery and roofing
tile applications, there are also thousands of unseen uses for clays.
Manufacturers use the electric charge on clay surfaces to bind chlorophyll and
other organics in semi-processed oil to clay particles that are later removed.
Companies are able to make hand lotions and paints that have a smooth, even
consistency because the solid clay components stay in suspension due to their
edge-to-plate bonds, which form a stable network. Clays also give a glossy surface
to this magazine paper by forming a smooth, thin, ink-receptive film over the
rough cellulose paper surface. Additionally, clays play a role in lightweight
aggregate for construction applications because gases that generate from shale
at high temperatures cause the viscous material to expand or bloat into a porous,
low-density structure.
Industry uses six types of clays: ball clay, bentonite, common clay and shale,
fire clay, fuller’s earth and kaolin. Mineral composition, particle size,
plasticity, absorption qualities, firing properties and oil clarification properties
are a few of the major characteristics used to distinguish among the different
industrial clay types. The term “clay” is applied to particles less
than 2 micrometers in size, but clay minerals can have particle sizes ranging
from tens of angstroms to millimeters.
In 2002, about 39 million metric tons of clays were sold or used in the United
States. This averages out to about 270 pounds or 123 kilograms of clay used
annually for each man, woman and child in the United States.
Common clay and shale dominated the clay industry with a production of 23 million
tons in 2002. Its primary uses were the manufacture of brick, cement and lightweight
aggregate. Kaolin ranks next, with about 8 million tons sold or used in 2002,
primarily for paper coating and filling applications. Bentonite, with about
4 million tons sold or used in 2002, was the third most used clay. Major uses
were in absorbents, drilling mud, foundry sand bond and iron ore pelletizing.
Fuller’s earth, ball clay and fire clay followed respectively by use. Although
there is no accurate accounting of world clay production, it undoubtedly exceeds
150 million tons per year.
For more information on clay and shale, visit: minerals.usgs.gov/minerals/pubs/commodity/clays/
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