What are ‘Recoverable Reserves’
Recoverable reserves are oil and gas reserves that are economically and technically feasible to extract at the existing price of oil.
BREAKING DOWN ‘Recoverable Reserves’
Recoverable reserves fluctuate with the price of oil and gas, unlike oil or gas resources that can be technically recovered at any price. Resources are considered recoverable reserves if they can be developed with reasonable certainty from a given date under current economic conditions, operating methods, and government regulations.
Resource reserves have specific classifications related to the degree of certainty with which they can be recovered, based on seismic and engineering data. Degrees of uncertainty are expressed by dividing oil reserves into two primary classifications, proven and unproven.
Proven reserves are reserves considered to have a 90% probability of being recoverable. Unproven reserves are not deemed recoverable, due to regulatory or economic factors. This class of reserves is further broken down into probable and possible reserves. Probable reserves are reserves that have an estimated confidence level of approximately 50% of being successfully recovered. Possible reserves are those with only a 10% probability of recovery. The SEC requires the lower certainty evaluations to be verified by a third party before an oil and gas company can publicly state them to potential investors.
Until 2009, the U.S. Securities and Exchange Commission allowed only 1P proven reserves (both proven developed reserves and proven undeveloped reserves) to be publicly reported to potential investors. Since then, it has allowed companies to provide information about 2P (both proven and probable) and 3P (proven plus probable plus possible) reserves, provided the evaluation is verified by qualified third party consultants.
Once an oil and gas field moves on from exploration into development and production, recoverable reserves are categorized as developed and undeveloped.