Mind your Ps and Qs - fracking reserves
The fracking debate continues to rumble on, although whether that is just a minor rattling of the china or a full-on Richter Scale 7 tsunami depends on which side of the debate you are on.
But what both sides seem to ignore among the claims of either a) trillions of cubic feet of gas that will keep the UK supplied for the next 100 years or b) environmental devastation that will turn rural England into an industrial wasteland, is that neither of these extremes will come to pass, or anything in between, if there turns out to be no producible gas at all. All the British Geological Survey has stated in its gas-in-place assessment of the Bowland Shale is 822–2,281 trillion cubic feet of resource, which, as many IOM3 members will be very aware, is not at all the same thing as producible reserves.
For those who are not aware, here’s a quick reminder. Resources refer to the amount of oil, gas or other mineral believed to be physically contained in the source rock. Reserves, on the other hand, are an estimate of the amount of said resource that can technically and economically be expected to be produced from a geological formation.
For any oil or gas company, booked reserves are a key financial indicator and a major influence on how the company is valued. Understandably, there are strict rules regarding how reserves are defined and assessed. In the UK, the Oil Industry Accounting Committee Recommended Practice (SORP-2001) classifies reserves as proven and probable, based on a statistical probability of these reserves being produced, or proven developed and proven undeveloped, depending on the status of development drilling. The alternative definitions are mutually exclusive, and companies have to consistently use one or the other throughout their reporting. Only proven/ proven developed reserves are usually accounted for in a company’s balance sheet. Interestingly, Cuadrilla, the only company so far to have drilled in the Bowland shale, makes no mention of gas reserves in its 2012 annual report.
The only way to turn a resource into a proven reserve is by testing appraisal wells, conducting pilot studies, completing engineering designs and getting development sanction from the Government. None of this has yet been done for any shale gas development in the UK, which is why the Department of Energyand Climate Change’s current position is, ‘There is insufficient understanding of the geology or experience of the engineering or costs of production to make a reliable estimate of the Bowland-Hodder shale gas reserves at this stage’.
So I really do wish that any journalist or reporter working on a shale gas story would ask a very simple question when anyone starts quoting the size-of-the prize: ‘is that a proven reserve?’ And until the answer is a confident yes, I think both sides in the fracking debate are getting unduly over excited in predicting a) cheap gas for all or b) environmental disaster for some. The fact is, neither are correct.