Part of the mission of the Energy Resources Program of the United States Geological Survey (“USGS”) is to determine the location, quantity, and quality of U.S. mineral and energy resources. In pursuit of that mission, the USGS recently conducted a survey of the potential of the Utica shale across the Appalachian Basin.
The results of the USGS survey are summarized in its report, Assessment of Undiscovered Oil and Gas Resources of the Ordovician Utica Shale of the Appalachian Basin Province, 2012, recently published on the USGS website.
The USGS concluded that Maryland, New York, Ohio, Pennsylvania, Virginia, and West Virginia are all in the Utica shale play. The survey also makes some rather eye-popping findings about the potential of the Utica shale in Ohio. The survey found that based on certain observed characteristics of the Utica shale and assumptions grounded in observations in other shale plays, Ohio is in an oil “sweet spot.” The USGS actually defined both an oil sweet spot and a gas sweet spot in the Utica shale play as shown on the following map*:
Click here to view map.
The USGS survey projected the mean “technically recoverable continuous (unconventional) oil and gas resources” from the Utica and Point Pleasant shale in the Appalachian Basin (not just the “sweet spots”) at 940 million barrels of oil, 38.2 trillion cubic feet of natural gas, and 208 million barrels of natural gas liquids. The USGS estimated that these resources would have to be tapped with nearly 130,000 horizontal, hydraulically fractured wells. These are significant numbers by any standard.
While it is tempting to focus on the numbers and jump to a number of conclusions, consumers, policymakers, and other officials must understand what the oil and gas industry already knows – these USGS estimates of “undiscovered technically recoverable” resources are a far cry from “proved reserves” and more information is needed.
Proved reserves are oil and gas deposits that, with reasonable certainty (a 90% probability), can be economically produced under existing economic conditions, available technology, and current regulations. Proved reserves are not speculative possibilities. Proved reserves are specific quantities of mineral assets in the ground that could be produced with near certainty. Proved reserves are backed up, or “proven,” with actual results from the target formation.
On other hand, undiscovered technically recoverable reserves are resources that are believed to be accessible based on an analysis of certain geologic conditions, analogy to other proven plays with similar geology, and other factors. But, because the resource is still “undiscovered,” it has yet to be proven and measured with any reasonable accuracy. Likewise, although current operating technology is taken into account, the economic profitability, regulatory restrictions, and other important factors are not considered. Simply put, estimated undiscovered technically recoverable resources may be technically possible to produce (if they do in fact exist, as speculated) but they may also be completely impractical to produce because, for example, market conditions make production prohibitively expensive.
Without an appreciation of this terminology, the USGS survey can be very misleading. Consumers, policymakers, and other officials should not rush to judgment or action without a better understanding of how the USGS estimate of undiscovered technically recoverable resources will translate to actual data and proved reserves.