Saudi Arabia has long reigned as the most important holder of oil reserves in the world but new data from a leading oil consultancy estimates volumes are sharply lower than official government projections, placing the kingdom below the United States and Russia. Rystad Energy estimates for Saudi Arabia’s proved reserves at 70 billion barrels are significantly lower than the 266 billion reported by Saudi Aramco.

Saudi Arabia’s official oil reserves have been mired in controversy for decades but debate over the data escalated again earlier this year after the government announced plans for the sale of up to 5 percent of state-owned Aramco, slated for late 2017 or 2018, which is expected to be the world’s largest ever share offering. Saudi Arabia has reported that proved reserves have been maintained in a narrow range of 260-268 billion barrels since 1990, when it substantially raised its official data from 173 billion barrels in 1989. Not coincidentally, almost all OPEC members sharply increased their reported reserve data in the 1980s when the group was considering using oil reserves, among other criteria, as a basis for determining each country’s individual production quota allocation. At the time, OPEC members, including Saudi Arabia, gave no explanation for the sudden upward revisions, such as new oil discoveries, to justify the sudden increases, which ignited debate over OPEC’s credibility of its reserve data.

There are international industry guidelines for defining oil reserves and the methodologies used for calculating them but implementation of these standards varies globally, causing inconsistencies in the way reserves are publicly reported. Both OPEC and non-OPEC state-controlled national oil companies have the widest variances and lack transparency.

There are three main categories of oil reserves that are universally accepted by the international oil industry: proved, probable, and possible reserves. The guidelines are set by the Society of Petroleum Engineers (SPE) in collaboration with the American Association of Petroleum Geologists, Society of Exploration Geophysicists, Society of Petroleum Evaluation Engineers, and World Petroleum Council. The U.S. Securities and Exchange Commission has similar definitions and guidelines that must be followed by U.S. companies for accounting purposes. According to SPE:

• Proved Reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations.
• Probable Reserves are unproved reserves which analysis of geological and engineering data suggests have 50% probability to be recovered.
• Possible Reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves and have a 10% certainty of commercial extraction.

Recycling Information

OPEC purportedly adopted the SPE standards almost a decade ago but individual countries do not provide detailed or audited geological and engineering data to support their official submission to the OPEC Secretariat, which only reinforces the view that the data is politically driven. Nonetheless, reserve data reported to the OPEC Secretariat for publication in its Annual Statistical Bulletin is widely disseminated across industry reports, adding further to the uncorroborated information in circulation.

The other main sources of public information on proved oil reserves are the Oil & Gas Journal (OGJ), annual BP Statistical Review of World Energy, and U.S. Energy Information Administration (EIA), which all basically recycle data that does not conform to SPE standards. The OGJ’s reserves estimates are based on survey responses and official updates by individual countries that have not been vetted by outside auditors, and which are not updated on a regular basis in many cases. The EIA data for countries other than the United States. is from OGJ and in its footnote says: “Reserve estimates for crude oil are very difficult to develop. As a convenience to the public, EIA makes available these crude oil reserve estimates from other sources, but it does not certify these data.”

The BP Statistical Review of World Energy is one of the industry standards for information but its data for global proved reserves is not sourced from its own research but compiled using a combination of primary official sources and third-party data from the OPEC Secretariat, OGJ, and World Oil. Moreover, the latest report notes that “the data series for total proved oil does not necessarily meet the definitions, guidelines and practices used for determining proved reserves at company level, for instance as published by the US Securities and Exchange Commission, nor does it necessarily represent BP’s view of proved reserves by country.”

In the distant past, independently assessed oil reserve data for OPEC members was more readily available from oil companies that had production sharing contracts all over the world, but the information flow dried up with the rise of national oil companies. There are several oil industry consulting companies that have a specialized focus on global oil exploration, production, and reserve data and, given the dearth of public information available, providing intelligence on oil field data to clients is big business. IHS Markit, which in recent years has merged with leading consultants CERA, Petroleum Finance, and John S. Herold, among several others, is one of the oldest and largest firms that generates its own proprietary oil field data and analysis based on its deep resource base and decades of experience. Norwegian-based Rystad is a relative newcomer, opening offices in Europe, the Americas, and Singapore over the past few years but so far does not have a Middle East presence. Rystad quickly established a client base, in part, because its data products are significantly less expensive than the larger, more established firms. Also, unlike other public reserve data in circulation, Rystad is at the forefront of trying to capture information on growing nonconventional oil field developments.

Rystad’s latest data release may have been intended to add more clarity to the opaque world of oil reserves but the new analysis has had the unintended consequence of adding further confusion to estimates of global oil reserves. Rystad issued a press release on July 4 with the provocative headline, “The U.S. Now Holds More Oil Reserves Than Saudi Arabia,” which was misleading since the analysis was based on highly speculative estimates for “yet undiscovered fields,” which deviates from the accepted industry definition of reserves. Rystad’s expanded definition of reserves to include yet undiscovered fields catapulted the United States and Russia above Saudi Arabia and made for explosive headlines in dozens of news reports, including the Financial Times, Bloomberg, and Gulf News. Under the expanded definition, which Rystad labels 2PCX, the United States holds 264 billion barrels, followed by Russia at 256 billion barrels, and Saudi Arabia at 212 billion barrels. But, by any measure, this new data set can’t be considered reserves since an oil or gas deposit is classified as reserves only after technical and commercial certainty of extraction using existing technology has been established. When Rystad uses industry accepted definitions of reserves under its IP, 2P, and 2PC categories as shown in the table, Saudi Arabia outranks all other countries.

However, it is Rystad’s estimates for the industry standard of “proved reserves” that are challenging the veracity of the publicly available reserve data, and critically Saudi Arabia’s role as the largest holder of global oil reserves. According to Rystad, Saudi Arabia’s proved reserves are just 70 billion barrels compared with 266 billion reported by Saudi Aramco. Rystad defines its proved reserves as “conservative estimates in existing fields,” which is in line with the SPE’s standard definition. Rystad assesses total OPEC proved oil reserves at just 381 billion barrels compared to an average of 1.21 trillion from the three major public sources of data – BP, EIA, and OPEC. According to Rystad, some countries, especially members of OPEC, exaggerated the size of their reserves in self-reported surveys; once only economically viable reserves were included for each country the numbers were much lower. The company said the data was based on an analysis of 60,000 fields worldwide conducted over a three-year period, but without access to Saudi Arabia’s oil field data it is difficult to understand how the new Saudi proved oil reserve estimates were arrived at with any degree of accuracy.

Deciphering the Puzzle

Data on Saudi Arabia’s oil fields, production rates, and reserve base have been scarce since the government took over full ownership of Aramco in 1980 from its partners – Standard Oil of California (later Chevron), the Texas Company (later Texaco), Standard Oil of New Jersey (later Exxon), and Socony Vacuum (later Mobil). Indeed, some of the last detailed information about Saudi oil reserves in the public domain was from a subcommittee report for the U.S. Senate in 1979.

As a result, questions over Saudi Arabia’s reserves have been simmering for decades and hit a feverish pitch during the height of peak oil concerns, fueled in part by the 2005 publication of investment banker Matthew Simmons’ book, “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.” Simmons argued in his book that Saudi Arabia’s production was nearing peak levels and would go into terminal decline by the end of the decade. Defying the gloom and doom peak oil scenarios, Saudi Arabia’s production is a sharp 1.4 million barrels per day (mb/d) above average 2004 levels, and near record at 10.45 mb/d in June, according to the International Energy Agency. Given the dearth of information available on Saudi oil fields, Simmons’ conclusions were partly drawn from analyzing 235 technical reports from the library of the SPE. Simmons’ forecast of a pending decline in Saudi Arabia’s oil production was proved wrong within a few years but the lack of transparency in oil field data, especially for Saudi Arabia and other OPEC members, was at the core of the mistaken analysis.

Debate over Saudi Arabia’s proved, probable, and possible oil reserves is expected to increase exponentially leading up to Aramco’s stock listing on global markets, which will almost certainly compel the government to provide more transparency on financial and operating data, including the country’s prized oil reserves. Between now and then, investment analysts will be closely tracking efforts to narrow the gulf between Rystad’s low-end proved reserve estimate of 70 billion barrels and Aramco’s lofty 266 billion barrels in order to place a value on the shares. Saudi Deputy Crown Prince Mohammed bin Salman has said he plans to usher in a new era of transparency as part of Vision 2030. The upcoming share sale in Aramco is an opportune time to make good on that pledge and lift the near four-decade veil of secrecy on oil reserve data in order to bring financial and operating standards at the world’s largest oil company in line with accepted international practice.