be catastrophic. “In my opinion, unfortunately, there will be no linear
change,” says Bakhtiari. “There will only be sudden explosive change.”8
All of this debate misses the point. As Simmons told me during an interview
on February 28, 2006, the issue of reserves is too complex for any
meaningful discussion here, because proven reserves are known in a field
only when its last barrel of produced oil is removed. “From the time an
oil and gas field is first discovered, the process of guessing what amount
of hydrocarbon can be recovered waxes and wanes,” says Simmons. “As
more knowledge of the field is gained, it sometimes leads to seeing that
the field is much larger than first thought. As more wells are drilled, the
opposite can also happen and does all too often.”
The amount of oil that is recoverable under normal conditions also
varies by each type of field. Some fields end up recovering as much as 65
to 80 percent of oil in place, while others get as little as 10 to 20 percent
recovery. The total reserves also include high-quality light, sweet oil
commingled with low-quality heavy, sour oil. In a way, it’s like commingling
wines ranging from jug wine to extremely expensive merlots.
Since the mid-1990s, most oil and gas companies have tended to add
more than 100 percent reserves each year compared to what they produce,
meaning they have been able to more than replace what they take
out of their reserves. That’s important because Wall Street values oil
companies based on their reserves as well as their earnings. “BP, for instance,
had a five-to-seven-year period when its reserves additions were
150 percent of production. But few of these companies found a way to
grow production. This raises a serious question as to whether the industry
systematically overbooked proven reserves,” Simmons told me.
But the companies are not alone. In the 1980s, OPEC members almost
doubled their reported proven reserves in a burst of revisions, without
any new discoveries. Then the numbers didn’t change for the next 15
years. Canada also revised upward its reserve numbers by adding unconventional
oil reserves—the tar sands—so it could brag that it was the
Saudi Arabia of heavy oil; that’s to say, Canada is the king of low-quality
sour crude. Does the data mean much? “I argue not much,” says Simmons.
Does the data prove that peak oil will not happen for decades?
“The data is meaningless as a guide to addressing when oil supply peaks
and when it begins to decline,” adds Simmons.
But to investors, the dire scenarios and the higher oil prices present an
opportunity to get a piece of the boom for the next few years. “Oil in-
24 THE END OF OIL