Valuing Oil & Gas Reserves

The oil and gas industry presents unpredictable challenges for finance professionals in valuing oil and gas assets. The upstream sector, exploration and production, is often considered the greatest investment risk amongst all three sectors. When estimating reserves quantities of recoverable reserves are classified as proved, probable, and possible. Proved reserves are divided up into four subsidiary categories; Proved developed producing reserves, proved developed non-producing reserves, proved being-pipe reserves, and proved undeveloped reserves.
Completed wells that are currently being produced are considered proved developing producing reserves. These particular wells are regarded as energy sources estimated with reasonable certainty to be recoverable with existing equipment and under the existing operating conditions. Providing volume, pressure, and production information proved reserves are held as the most valuable of all.
Proved developed non-producing reserves consist of proved reserves from wells which have been completed and identified but are not producing due to lack of minor completion problems. The upside to PDNP’s is these issues can be corrected. With the help of mechanical repair operations or initiating production the reserves can be produced. Expenditures may be required on the surface in order to get operations up and running, but no additional costs within the well is necessary.
Proved behind-pipe reserves are those that expect to be recovered from zones in existing wells. These reserves will require additional completion work or future recompletion prior to production. A reservoir different from the one currently producing becomes accessible through the same wellbore. PBP’s are considered risk in that the reserves still may not be recovered. An operator is needed to conduct recovery operations. Operators