China’s Nanpu Oil Find Shows Pitfalls of Estimating Reserves

The pitfalls of evaluating big oil finds were underlined this week when China’s Ministry of Land and Resources certified PetroChina Co.’s (PTR) Nanpu oil discovery as having half the reserves of market estimates.

The Nanpu block in Bohai Bay’s Jidong oil field in northern China was hailed by some analysts as the biggest find in China for decades after PetroChina said in May it could hold as much as 1 billion metric tons of oil equivalent, of which 405.07 million tons were classified as total proven reserves.


Although the proven reserves figure was revised up by 10% to 445 million tons by the ministry on Tuesday, analysts instead focused on the economically recoverable reserves estimate of 86.6 million tons, which is equivalent to 632 million barrels.

Economically recoverable reserves are the oil that a company thinks it has a high probability of bringing to the surface.

Credit Suisse said market estimates for the economically recoverable reserves at Nanpu ranged from 1.2 billion barrels to 3 billion barrels. Another bank, UBS, put consensus estimates at 1.2 billion barrels of oil equivalent.

Such high estimates were common because PetroChina had guided the market towards a 40% recovery rate of the total proven reserves, Credit Suisse analyst Prashant Gokhale said. This compared with the 20% recovery rate implied by the ministry’s estimates.

Dow Jones Newswires