What Are 3P Oil Reserves?
Let me explain what 3P oil reserves are: they're the total amount of reserves a company estimates it has access to, figured out by adding up all proven and unproven reserves. The '3P' stands for proven, probable, and possible reserves.
In the oil industry, we break unproven reserves into two parts: probable ones based on solid geological and engineering data from established sources, and possible ones that are less likely to be extracted because of financial or technical hurdles. So, 3P means proven plus probable plus possible. Compare that to 2P, which is just proven and probable.
Key Takeaways
Here's what you need to know: 3P oil reserves cover the full estimated reserves, including all proven and unproven ones a company can access. Each reserve category comes with a probability of actually recovering the crude oil. Oil and gas companies often give optimistic estimates of their 3P reserves, so investors turn to independent consultants to evaluate potential investments.
Understanding 3P Oil Reserves
The 3P estimate is basically an optimistic guess at what an oil company might pump out of a well. Each category has its own production probability: proven reserves get a 90% certainty (P90), probable a 50% (P50), and possible a 10% (P10) of being produced.
Think of it like fishing: proven reserves are like a fish you've already caught and landed—it's certain. Probable reserves are like having a fish on the line; it's caught but could still get away. Possible reserves are like knowing there are fish in the river somewhere—they exist, but it's not certain you'll discover, develop, and produce them fully.
Energy companies keep investors updated on their oil and natural gas reserves through annual reports that include proven, probable, and possible reserves, much like a retailer's inventory update. But remember, there's no legal requirement to report 3P reserves. Lately, startups and exploration firms have started reporting them because adding possible reserves can inflate figures and attract buyouts from bigger companies. It's cheaper to hire for a 3P calculation than to fund expensive exploration.
Independent Consultant Resource Assessment
Several consulting firms offer independent assessments of oil reserves for companies, and these are useful for investors seeking confirmation of claimed reserves. Firms like DeGolyer and MacNaughton or Miller and Lents have provided trusted upstream insights and reservoir evaluations for years.
As an investor in oil and gas or independent projects, you should rely on these firms for accurate, independent reviews of a company's full reserve base, including 3P. They cover estimates of recoverable reserves and resources from discoveries, plus verification of hydrocarbon and mineral reserves.
Rapid Classification Changes in Proven Reserves
Grasping the natural resource extraction industry can be tough because proven reserves are just one of three classifications. You might think proven reserves only increase with new wells and discoveries, but actually, shifts between classifications often cause bigger changes than new finds. That's why it's helpful to know a company's proven, probable, and possible reserves, not just proven ones.
Without probable reserve data, proven reserves can shift suddenly. For instance, if a company has lots of probable reserves and extraction tech improves, those move to proven reserves.
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