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The 3P’s in Oil and Gas: What they are and why you should care

The 3P’s in Oil and Gas: What they are and why you should care

Proved, probable and possible. It’s quite the mouthful and flirts with juggling semantics when it comes to defining oil and gas reserves.

The newbie investor in the oil and gas industry could look at those terms and lump them into one category. That would be a mistake. We all know there’s oil in the ground. We stick a pipe in a deep hole and out comes the glorious crude stuff to make it rain black cash.

It’s not that simple. The quality of oil or gas being produced, the size of the reservoirs, the commodity price, the physical location of the producing wells, how it’s drilled, completed and most importantly, if the well can be even be produced economically. These are just a few of the things an investor or advisor need to understand when reviewing oil and gas operators.

Thankfully, the Society of Petroleum Engineers has provided some terms to give us guidance as we look to understand and value oil and gas companies.

  • Proved Reserves: 90% Certainty of Commercial Extraction (“We’re gonna get that oil”)
  • Probable Reserves: 50% Certainty of Commercial Extraction (“We’re gonna try to get that oil”)
  • Possible Reserves: 10% Certainty of Commercial Extraction (“We’re gonna talk about getting that oil”)

Public oil and gas companies will report their “3P” numbers, or more commonly just the Proved and Probable numbers. These figures allow an investor to figure out how much oil or gas reservoirs a company potentially has to produce.

A large producer such as CNRL reports reserves over 8,000 MMBOE (that’s eight thousand MILLION barrels of oil equivalent. You didn’t read that wrong) and their stock price incorporates the value of CNRL’s assets at today’s commodity prices.

A junior oil and gas company such as Quattro Exploration and Production recently reported:

Proven plus Probable ("2P") reserves grew to 6.602 million barrels of oil equivalent (boe), with the increases being almost entirely attributed to the Company's diversified production in northeast British Columbia and east-central Alberta. Quattro's Reserve Life Index ("RLI") increased to 19.3 years (Proven plus Probable).

Quattro - Oct 13 - Nov 12

Quattro - Oct 13 - Nov 12

Compared to CNRL, the reserves pale in comparison but so does the stock price. By understanding the 3P’s and what they mean, your new knowledge can be combined with a traditional due diligence process of deciding which investments are a good fit for you.

“We are in a situation where the economic outlook isn’t rosy but as a company, we are still excited about our prospects,” says Quattro CEO, Leonard Van Betuw.

“We’re in a positive financial situation as a result of a collaborative effort from stakeholders; employees, suppliers and shareholders, which are an integral part of our success as we continue to adapt to the new normal in terms of today's commodity pricing.”

Click here to find out more about Quattro and ask Leonard a question!

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Darren Stewart

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