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# Uncertainty range in production forecasting

It follows that forecasts that deviate from the actual production with hindsight can still be good forecasts if the uncertainty range is properly defined, justified and documented as will be shown by Example 6 on the Production forecasting FAQs. However, forecasts that contradict each other even though they are based on the same information cannot be good forecasts, even if they are made for different purposes see Example 3 of the Production forecasting FAQs.

## Low (P90)/high (P10) range

It is customary in the industry to describe this uncertainty in terms of a low (P90)/high (P10) range. This is consistent with both the  Petroleum Resource Management System (PRMS) [1] and the Securities and Exchange Commission (SEC) [2]. Both define the reserves and resources estimates in terms of P90/P50/P10 ranges [3]:

The range of uncertainty of the recoverable and/or potentially recoverable volumes may be represented by either deterministic scenarios or by a probability distribution When the range of uncertainty is represented by a probability distribution, a low, best, and high estimate shall be provided such that:

• There should be at least a 90% probability (P90) that the quantities actually recovered will equal or exceed the low estimate.
• There should be at least a 50% probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
• There should be at least a 10% probability (P10) that the quantities actually recovered will equal or exceed the high estimate. When using the deterministic scenario method, typically there should also be low, best, and high estimates, where such estimates are based on qualitative assessments of relative uncertainty using consistent interpretation guidelines. Under the deterministic incremental (risk-based) approach, quantities at each level of uncertainty are estimated discretely and separately.

For volume estimates, a low (P90)/high (P10) range is thus unambiguously defined by statistics. The situation is more complex for a production forecast because the forecast is a timeline and not a scalar. This has led to a variety of uncertainty definitions for the forecast used in the industry, and has hampered progress in deriving the best methods, tools and processes for deriving the forecast uncertainty range.

Another important concept of the PRMS is that resources should be “project based” [3]:

The “Range of Uncertainty” reflects a range of estimated quantities potentially recoverable from an accumulation by a project, while the vertical axis represents the “Chance of Commerciality, that is, the chance that the project that will be developed and reach commercial producing status.

Details of project-based reserves classification is given in Guidelines for Application of the Petroleum Resources Management System [4]. Chapter 2 of these Guidelines gives a comprehensive description of how to classify projects and subprojects into resource classes and subclasses, while Chapters 4 and 5 give examples of how to derive the range of uncertainty of a project by deterministic or probabilistic methods, respectively. Finally, Chapter 7 discusses economics and economic limit tests based on production forecasts, as reserves must be economic by definition, and Chapter 10 discusses the impact of production and sales contracts on reserves, including complex PSCs.

## References

1. "Petroleum Resources Management System." Petroleum Reserves and Resources Definitions. Society of Petroleum Engineers. http://www.spe.org/industry/reserves.php
2. Securities and Exchange Commission, 17 cfr parts 210, 211, 229, and 249, [release nos. 33-8995; 34-59192; fr-78; file no. S7-15-08], rin 3235-ak00. Modernization of oil and gas reporting, revisions and additions to the definition section in rule 4-10 of regulation s-x. http://www.sec.gov/rules/final/2008/33-8995.pdf
3. "Petroleum Resources Management System." Petroleum Reserves and Resources Definitions. Society of Petroleum Engineers. Section 2.2.1; Range of Uncertainty. Page 9. http://www.spe.org/industry/reserves.php
4. " Guidelines for Application of the Petroleum Resources Management System." 2011. Petroleum Reserves and Resources Definitions. Society of Petroleum Engineers. http://www.spe.org/industry/reserves.php

## Noteworthy books

Society of Petroleum Engineers (U.S.). 2011. Production forecasting. Richardson, Tex: Society of Petroleum Engineers. WorldCat or SPE Bookstore