Petroleum reserves and the credibility gap

Abstract EN

This paper focuses on studying the available definitions of petroleum reserves and the resulting credibility gap.

The credibility gap refers to the apparent disparity amongst the reported petroleum reserves values.

There are two main reasons for this gap; the first reason is that there is no consistent definition of petroleum reserves.

In fact there are many definitions available today in the oil industry.

In addition, the wording of each definition is sufficiently vague allowing evaluators a great deal of latitude when classifying reserves.

Furthermore, oil companies tend to use definitions that fulfill their specific goals.

This misuse, along with the companies.

pressure to look good in the financial market, has led to a bending of the rules.

Consequently, it is necessary to adopt a consistent definition with clear wording in order to enhance communication and to avoid a situation where the definition of petroleum reserves loses all meanings.

The second reason for the gap is that petroleum reserves are not measurable quantities; they are only estimates.

As a matter of fact there is no single estimation method and there is always uncertainty in each method.

This reason coupled with the countries.

underlying politics and prevailing economics govern the credibility of the reported reserves values.

Therefore, it is necessary to provide a methodology for estimating reserves on a common basis in order to improve the support for financial reporting and to attract the public financing.