Oil reserves

Reserves are the amount of oil or gas that has been discovered and that can be extracted profitably with existing technology under present economic conditions.

Reserves are categorised as being proven, probable or possible. There are, unfortunately, no standard definitions for these terms which can vary between companies and countries. The definitions are generally broadly similar.

The lack of definitions does create an opportunity for companies to manipulate the numbers. In the UK, definitions are usually similar to those used by the DTI, but companies have wide discretion. In the US, the SEC imposes definitions on listed companies.

National reserve numbers are often very inaccurate, as national governments have strong motives to exaggerate their reserves: for example, it strengthens the countries financial position, making it easier and cheaper to borrow.

Global reserve numbers, especially those produced by inter-governmental agencies, are similarly suspect.

The problem in all cases, is that almost everyone in the industry or government as motives to be optimistic about reserves.

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