Bloomberg has shocking news for us. When fossil fuel companies report their reserves they give us different numbers from when they report their resources. They why seems to have escaped the news organisation:
Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators. Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold.
That why being that reserves and resources are different things. This being the way that language tends to work: when we want to describe something that is different we use a different word to do so. Thus helps us distinguish between those different things we're talking about. In general for minerals and fossil fuels a reserve is something that we've proven is there, we've proven that we can extract it, in the volume we say we can, using current technology and also we can make a profit doing so at current prices. Resource is a looser concept: we've good evidence that there's what we say is there there, that we can extract it, using current technology, at current prices, and make that profit. But there's only good to reasonable evidence, we've not spent the money to prove this as yet. There's also a gradation: proven reserves, probable reserves, inferred resources and so on but that's the general structure. So why do companies talk about the different numbers? Because different people are interested in different things. The SEC (and other regulators, the LSE is pretty similar) wants investors to have access to the best hard numbers there are. Great, so, report reserves according to the rules they insist upon. But investors are also interested in what might happen, what could happen and what's likely to happen. After all, if we've two companies, one with 1 billion barrels of reserves and no resources and one with one billion of reserves and 2 billion of resources then that second is logically worth more than that first. So, that's why the use of the different numbers. Because they're referring to different concepts, each useful in a different manner. And that, of course, is why we use different words to describe them, so that we can distinguish between those different concepts. Seriously, it's not that difficult to understand, this is only geology, it's not rocket science or anything.