GEOL. C ROAT . 49/2 203 - 209 4 Figs. 2 Tabs. ZAGREB 1996 

Review paf)fr 

Hydrocarbon Reserves Replacement· Methods and 
Expenditures 

Antun BAUK 

Key words: Hydrocarbon reserves replacement , C las­
sification o r hydroca rbon reserves, Acqui si ti on o r 
reserves , Reserve management, Development exp­
enditure, Production cost, Finding cost, Net present 
value, Reservoir management. 

Abstract 
Resu lts of INA-NaflUp lin's activi ty in replacement of oil and gas 

reserves arc comparccl lo those o f western oil com panies. The reserve 
replacement ral io fo r the 20-ycar period from 1975- 1994 is approxi­
mately 90%, but il averaged only 43% in the las\ 5 years when explo­
ration results in a l iI" domestic area were poor. Exploration and devel ­
opment costs, which have also been analysed, indicate u higher COS! 

per barrel discovcred in tile last 5-year period. Acquisit ion or reserves 
as a method of reserve replacement is st ill unknown in Croati a, but 
prccisely thi s met hod sho uld provide a so lution to the current s itu a­
tion. 

Remai ning oi l reserves are 10 be found in old fields in their final 
development phase and only selective introduction of new technolo­
gies and EOR processes, as wcll as the lowering of produclion costs, 
can gua rant ee their rati onal production. Full in trod uct ion of the 
reserve management concept is a guarantee thai such ac tivity will 
proceed in a manner cus tomary ror western oi l companies. Resu lt s 
achieved to date on concess ions abroad in dicatc considerably hi gher 
efficiency and low er oi l cos ts, justifying ollr g rowi ng orientation 
towards exploration of fore ign concessions. 

1. INTRODUCTION 

The primary task of every oil company is the ratio­
nal ex ploitati on of the discovered reserves of hydrocar­
bons, the most important acti vity being the replacement 
o r oil reserves at least equ ivalent to the quanti ties pro­
duced in a given period. Oi l companies whi ch fail to 
replace Ihe produced quantilies of oil ancl gas arc essen­
tially self· liquidating. 

Reserves can be repJaced by severa l methods, and 
such activ ity is known as reserve managc ment. The 
most important of these mcthods is the di scovery of 
new reserves as a resu lt of exploration 1'0 1' o il and gas. 
Development operations lead in g to the increase of 
recoverable reserves in certain phases of" Ihe fi cld 's pro­
ciucli vc life are aimosl equally important. Due to the 
fact that determinat ion of hydrocarbon reserves wi thin a 

INA Naftaplin, 'subiceva 29. HR- t (){X)() Zagreb, Croat ia. 

PROCEED IN GS 

K lj ucne rijeci: obnavlj anje zaliha ugljikovodika, klasi­
fi kacija zaliha uglj ikovodika, kupnja za li ha, uprav­
ljanje za li hama , ulaganja u razradu , troskovi p ro­
izvodnje, troskovi pronalazenja, nellO sadasnja vri­
jednost, upravljanje lezistima. 

Sazctak 
U rael u se analiziraj u nac ini i rewlta' i aktivnost i INA-Naftaplina 

u obnav ljanj u rezerv i nane i pi ina. T i rezultat i lIsporcdc ni su s 
ak livnosti ma zapadn ih naftn ih tv nki . Koeficijcnt obnove rczervi za 
d vadcsctogodi snje razdobljc 1975 -1994 je oko 90%, a prosjek 
pos ljcdnj ih lret godina jc 43% sa sk romnim rezulta lima 1I iSlraiivanju 
na domacem pros toru. Analizirajll sc i ulaganja 1I istra7.i vanj e i 
razrad u. iz ccgu se moze zak ljucili da ul aganja po jcdi ni c i Olkrivell ih 
rezc rvi takocler rastu u posljednjcm pC logodisnjem razdoblju. Kupnja 
reze rvi kao nacin Iladomjes tavanja rezervi kod nas jc Il cpoz nat. a 
up ravO 10 bi trebao biti izlaz iz silllacije u kojoj sc sada n'll azirno. 

Preosta tc rezerve naft e su na starim po ljima u zavrsnoj razi 
razrade, te sarno selekt ivna primjcna nov ih tchno logija i EOR procesa 
kao i sn izenje troskova proi 7.vodnjc mogu os igurm i njihovo ekono­
mi cno crpljenje. Potpuno uvod cnj c konccpt a uprav ljanja Iciistima 
pretpost :lvka jc cia cc se ta aktivnost odv ijati na naCin kako jc to orga­
nizirano II zapadnim nartnim tvrlk:!ma. Dosadasnji rezullati akti vllost i 
na ko nces ijama u inozem stvu uk azuj u na znaino vecu c l"ikasll os1 i 
ni zlI c ij cnll kostanja nartc. s10 opravdava svc znacajniju orijellt:tciju 
tvrtkc n:l iSl razivanja na inozemnim konccsijama. 

reservoir is a complex process repeated scveral lim es 
dur ing the productive life or a fi e ld , the influ ence of 
reserve revi si on on th e tota l vol um e and quality o f 
reserves is significant. The Rules on Categorization and 
C lassifi cat ion of Hydrocarbon Rcserves in the Republic 
of Croat ia include the te rm " balance reserves". They 
represent the fraction o f the di scovered oi l and gas in 
place, wh ich can be economically produced using cx ist­
ing technology. 

During the long producti ve life of a field consider­
ab le tech no logica l advances in the development and 
producti on o f o il and gas are to be expec ted , and the 
econom ic conditions such as price of hyd rocarbon 'S 
products a lso change. These two groups of facto rs have 
an e ffect on the rev is io n of rescrves. Since Rules on 
Reserves Categorization in the Republic of Croat ia dif­
fe r from corresponding western standards, for the pur­
poses of" this paper reserves of A, Band C

J 
category a re 

identi fied as : proven " deve loped and undeveloped" 
reserves, according to the Soc ie ty o f Petroleum Engi-



204 Geologia CrOi1(iCi1 49/2 

Proved reserve changes Reserve replacement ratio 
10'TOE 

Year Discoveries Extensions Revisions Total Production (1):(5) ((1)+(2»:(5) (4): (5) 
& sec. reeov. +/- 10'TOE % % % 

(1 ) (2) (3) (4) (5) (6) (7) (8) 

1975 73 8338 8411 3654 2.0 230.2 230.2 

1976 4470 4470 3875 0.0 0.0 11 5.4 

1977 2100 -3315 - 1215 4078 0.0 51.5 -29.8 

1978 18550 2995 1250 22795 5194 357. 1 4 14.8 438 .9 

1979 - 1068 - 1068 4122 0.0 0.0 -25 .9 

75.-79. 18623 13433 1337 33393 20923 89.0 153.2 159.6 

1980 500 - 1875 - 1375 4226 I 1.8 11.8 ·32.5 

1981 1240 937 2 177 4524 0.0 27.4 48.1 

1982 510 594 72 1176 4576 11.1 24.1 25.7 

1983 385 -3106 -2721 4277 9.0 9.0 ·63.6 

1984 231 1 2311 4341 53.2 53.2 53 .2 

80.-84. 3706 1834 -3972 1568 21944 16.9 25.2 7.1 

1985 132 132 4735 0 0.0 2.8 

1986 6879 80 792 775 1 4846 142.0 143.6 159.9 

1987 6897 8694 7132 22723 5200 132.6 299 .8 437 .0 

1988 2611 58 2669 5038 51.8 51.8 53.0 

1989 1173 1277 2450 4957 0.0 23.7 49.4 

85.-89. 16387 9947 9391 35725 24776 66.1 106.3 144.2 

domes\. & intern. 
85.-89. 37306 25450 146.5 

1990 733 -693 40 4633 0.0 15.8 0.9 

1991 50S ·1071 -566 4171 0.0 12.1 ·13.6 

1992 204 1558 1762 3457 0.0 5.9 51.0 

1993 513 6614 7127 3890 0.0 13.2 183.2 

1994 1589 ·1539 SO 3510 45.3 45.3 1.4 

90.-94. 1589 1955 4869 8413 19661 8.1 18.0 42.8 

dOtTI es t. & intern . 
90.-94. 3274 1955 5530 10759 20691 15.8 25.3 51.9 

TOTAL 40305 27169 11625 79099 87304 46.2 77.3 90.6 

TOTAL 
domes!. & intern. 83026 89008 93.3 

Table I INA-Naftaplin 's Replacement of Proved Hydrocarbon Reserves for the Period 1975- [994. 

nccrs methodology (S,P.E. , 1987). The volume of reser- reserves [rom already discovered fi elds or from field s 
yes and production of oil and gas is expressed in tons of in development. In such a manner stabil izat ion of busi-
equivalent oil (TOE: 1000 m3 of gas = I t of oil). ness operations is achieved and the basis formed for the 

Through the activ ity of every oil company there are new cycle of explorat ion and other activities. Financial 
certain periods when the produced quantities cannot be inves tments in to the replacement of reserves by each of 
replaced by any of the described methods and in such the mentioned methods arc naturally of primary impor-
cases oil companies usually resort to acquis it ion of tancc. 



B:luk: I-Iydroc:lrhon Reserves Replaccmcnt - MeillOd~ nnd Expendilures 205 

450.0 
% 

400.0 
Ii' 350.0 0: 
~ 
0 

300.0 

~ 250.0 

C 200.0 
~ 

E 150.0 ~ 
u 
~ 100.0 a. 
~ 50.0 
~ 
> 
~ 0.0 -
~ 
~ -50.0 0: 

-100.0 

1975 1977 1979 1981 1983 1985 

The analysis of act iv ities related to the reserves 
replacement on a year to year basis will not g ive re<tiis­
tic resu lts, since they can be altered by unexpected suc­
cesses or failures. Instead, the resul ts and expenses for 
the replacement of reserves over a longer period - at 
least 5 years - shou ld be reviewed. The pape r will 
analyse the activi ty of 1NA-Naft ap lin during the pre­
ceeding 20-year period and compare it with the results 
of well -known western com panies. This paper is the 
first attempt to analyse reservoir exploration and devel­
opment results a nd expenditures in INA-Na ftap lin 
beyond those inte nded for internal usc. 

The data on reserves have been taken from the so­
called Book of Reserves, with ap prova l of the autho­
rized Comm ittee of the Mini st ry of Economic Affairs. 
T he Company's Financial Departme nt prov ided the 
data on exploration and development investments. 

2. METHODS AND RESULTS OF RESERVE 
REPLACEMENT 

Table I and Fi g. 1 show the resu it s of reserve 
repl acement by INA-Naftapl in in the 20-year pe riod 

Exp!. Total Finding 
spend spend expend. 

Oil Company 
$IBOE $iBOE $iBOE* 

produced produced 

Majors L63 4.98 3.3l 

US indcpend. 2.70 7.6R 2_82 

8Europcans 3.64 14.8 3.1 

lNA (R6_ 90_) 5.4 R.R9 5_34 

INA (90_ 94_) 2.83 3_9l 8.63 

lNA (85 .-94_) 4_2l 7.04 5.8 1 

lNA 
domest. & intern. 3_ 1 4.58 4.8 
90.-94 

1987 

--0-- RRR discoveries 

RRR disc. + sec. recovery 

total RRR 

1989 1991 1993 
Year 

Fig. I Reserve replacement 

ratio for I NA-Nafwplin 
domestic . 

[rom 1975 lo 1994. During lhis period 72% of lhe 
cumulative production of INA-Naftaplin has been real ­
ized and reserves have increased by 44% in comparison 
with those reg istered a t the beginning of that period. 
The analysis was prepared to estab lish the reserve 
re pl acement ratios (RRR). This ratio is a relationship 
between the volum e of repl aced reserves and real ized 
product ion in a certa in period. 

The paper analyses three methods of rese rve 
replacement: discovery, field extens ion and introd uc ­
tion of secondary methods during the development of a 
field , as well as the revision of reserves upwards or 
downwa rds. Since the data have been taken from the 
Book of R eserves, there' s a certain lag, espec iall y 
between the discovery and booking of proven reserves, 
which in our case may range from 2 to 12 years. The 
average lag is 8 years for the 22 newly discovered and 
analysed fi e lds ( for the group of companies from Table 
2 that average is 5 years). During the analysed period 8 
new field s have been discovered ill this period and out 
of the 22 new fields 18 can be class ified as oil and 4 as 
gas fields. The ratio of discovered reserves is 90: 10% in 
favour of gas and gas-condensate fi e lds. Total reserve 

Acquisit. Develop. Total RR_ RRR Total 
expend. expend. expend. expl.+revis RRR 

$iBOE $/BOE** $iBOE % % 

3.91 3.59 7.24 68 100 

3.99 L77 4.25 99 l49 

3_33 L72 5.4 128 310 

2Al 6_16 101 l44 

3.80 9. l2 32.8 42.8 

2.85 7.09 72.5 99 .3 

3_67 8.36 42.5 52.0 

Tabl e 2 Reserve ReplaeemenJ ExpendilLlre - 5-year average 1986-1990. Legend: * BOE - discovered+rev ision: **dcvel.expend. / Total reserve 
increased. 



206 Geolog ia Croalica 49(2 

160 ~.------.-------------------------------------------, 

140 
% 

120 

...... ........ 
100 ~------~~~--------~L-~~-.. -... -... -.. . -... -... -... ~.?-----~~, •.. ---------+~ " , .... ..... 

, , 
80 

60 -

40 

20 

~ 

./ '-
./ '-

'-

.. / . ........ . 

'- ---'- ..-
'- ..-

-- --- ----........ _- --- -

O ~----.----'----'-----r----.----.----'-----'----.---~ 
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 

Year 

- - - ' Oiscoveries 

--- Discovery + sec. recovery . acquisitions 

Discovery + sec. recovery + revisions 

_____ Discovery + sec. recovery 

Fig. 2 Reserve replacement 
ratio for major compa­
nies. 

replacement ratio for the 20 year period of ac tivity in 
the Republic of Croatia is 90.6%, 50% of which arc 
newly discovered reserves, and the remainder is the 
result of field extension and introduction of secondary 
oil recovery methods (31 %) and revision of reserves 
(14%). Analysing the 5-year periods, the replacement 
of reserves was sllccessful in the periods from 1975 -
1979 and 1980- 1984. In the former the resu lts can be 
mainly attributed to the discovery of the Molve gas 

field and the introduction of secondary oil recovery 
methods at. the Benicanci and Zutica fie lds. In the later 
pe riod thc rcscrves of Kalinovac, Stari Gradec and 
Ivana gas and gas-condensate fields have been taken 
into account, together with those related to the exten­
s ion of the Molve and Delctovci fields, as well as the 
results of several successful rev isions of reserves. 

The average reserve replacement ratio based on 
exploration , which exceeds the balanced average 
achieved by the group or large oil companies in explo­
ration over a several -year period (Pig. 2), can be attrib­
uted to three significant gas discoveries (Molve, Kali­
novac, Ivana). 

Th e results of the last 5-year period 1989-J994 
(with RRR at 8.1 %) are disappointing, especially in 
vi ew of the fact lhal unrecorded but discovered reserves 
will not significantly change the situation. The results 
of the period from 1980- 1984 arc similar, in fact the 
ove rall results of reserve replacement by all methods 
arc the lowest - only 7.1 %. 

Extens ion of reservoirs in the existing fields and the 
introduction of secondary methods to increase the 
recovery ratio is an important method for the replace­
ment of reserves. For the group of major companies 
(Fig. 2) it amounts to approx. 20% and for INA-Nafta­
plin about 31 % . It needs to be stressed that the most 
significant additional reserves acquired by this method 
have been recorded in the same period as the discover­
ies , resulting in two pronounced peaks in 1978 and 

1987. Since we have no major oi l fields as candidales 
for the introduction of secondary methods, this method 
cannot be expected to significant ly increase our 
reserves. This paper particularly focuses on the rational 
utilization of remaining reserves. Activities involving 
the reinterpretation of geological models of reservoirs 
are ongoing and are expected to yield some positive 
results. The difference between the extension of reser­
voirs and revision of reserves has to be explaincd. 

Extens ion of reservoirs results in new reserves 
based on the increase of reservoir volume defined after 
thc completion of geological, geophysical analyses and 
after dri lling. There is a te rm "reserves determined by 
bit", which arc the result of operations conducted dur­
ing field development. 

Revision of reserves is also a continuous activity of 
field development which consisls of the revision of all 
parameters [or reserves calculation , including recovery 
factor prediction. Revisions were carri ed out at 5 year 
intervals. The basis for every revision is the monitoring 
of field production performance and results of calcula­
tions or numerical simulation of the reservoir depletion 
process. Revisions can be optimistic or pessimistic, the 
average for the 20-year period from Table 1 is + 14%. 
Pessimistic revision of reserves (-18%) is evident in 
one S-year period (1980-1984) and for other such peri­
ods revisions differ by +6 % to +38% in comparison 
with the total change of reserves. The size of change in 
reserves bascd on revisions also reflects company poli ­
cy, i.e. is it more or less careful in the definition of 
reserves. Depending on the year the growth of reserves 
based on revision ranges from 20-50% for the group of 
large companies (Fig. 2). 

Results of revision are often added to the ini tial 
reserves of the discovered fields, as in this paper in the 
analys is of funds spent in exp loration activities (Table 
2). 



i3;llIk: Il ydrocarbon Rcscrves Replacemen1 . Methods and Expenditures 

Results related to reserve replacement mentioned so 
rar refe r to the activi ty of INA-Naftaplin in our national 
exploration area. Effects or activities on concess ions 
abroad arc prcsented in Table I. Detailed data are given 
only for the 1990-1994 period, together with the ovcrall 
elTec ls for the two S-year periods when we recorded 
production abroad (mostly from Block 3 in Angola). 

Contr ibution or our expenditure into exploration and 
development abroad is ev ident. The reserve replace­
ment ratio for foreign field s ror the period 1990- I 994 
amounted to 228% and reached 235% in the period 
from 1985- 1990. 

3. RATIONAL EXPLOITATION OF INA­
NAFTAPLIN'S REMAINING RESERVES 

Out of the predicted recovery ratio of 36%, 30% of 
the discovered reserves of oil have been produced by 
the end of 1995. The realized recovery ratio for free gas 
amounts to 30% of the predicted 72%. Only the 
cxploitation of the remaining oil reserves will be dealt 
with in this short analysis, since major gas fields are in 
the stable development phase and incorporation or new 
rescrvcs into production is to foJlow. 

Based on thc current data, about 5 x 106 m3 or o il or 
about 25% 01" the rcmaining recoverable oil reserves 
have been catego rizcd as uncommercial reserves, pri­
marily in view of high production costs, particularly in 

Ihe final phase of exploilalion. By lowering exp loilal ion 
costs and increas ing well productivity part of those 
rescrvcs could turn into commercial reserves. 

Economic cri teria will be decisive in the introduc­
tion of new technologies applicablc to additional devel ­
opment of old reservoirs with rescrvoir pressures con­
siderab ly be low hydrostatic pressure and with hi gh 
water conten t. Secondary methods are being appl ied in 
IS major fie lds wit h over 80% of initial reserves, or 
wherc we have an efficient natural water dr ive. 

The greates t attention should be focused on thi s 
grou p of fie lds, since the remaining 27 ri elds account 
only for 3 x 106 t of unrecovered reserves, and only 0.6 
x 106 t of rcscrves that have not already been placed 
inl o production. The expected rccovery rate for the fi rst 
group of fi elds is est imat ed at 38%, which means th at 
62% of the discovered (geo logical) reserves wou ld 
remain in the reservoi r. According to the analyses, 22% 
is the so-ca lled mobile oil in those zoncs of the reser­
voir with poor. reservoir characteristics which have not 
been swept by water cncroachmen t. A par t of those 
rcserves can be ac ti vated by in-fi ll drill ing, application 
of intensive stimulation (hydraulic fracturing ), drill ing 
of" horizontal well bores in old wells (re-entry), or by 
horizontal drilling . Thcse opcrat ions arc already in 
progress. The second part of remaining oil amount ing 
to some 40% (90 x IOIi t) is the so-called immobile oil, 

which rema ins in pore spaces behind the water front. 
Under our reservoir condi tions, some of this oil can be 
recovered by the injection of CO2 into thc reservoir 

207 

unde r miscible cond iti ons. Laboratory research and 
numerical simulations have indicated that some 9-24 x 
106 m3 of oil cou ld be recovered from the Ivan ic Grad, 
Zutica and Struzec fields in thi s way . Thc projects are 
economi ca ll y sensiti ve and only pil ot-projects in the 
fi eld could provide the data for business dec isions relat­
ed to the ir full-scale implementat ion. 

Poss ibili ties previously considered by Naftap lin's 
experls (BAU K c i aI. , 1988) have only been briefly 
mentioned he re. Other EOR processes would be hard ly 
applicable in our condi tions. In such ambitious projects 
it is important to apply the reservoir management 
concept, which is defined as: increasing the economic 
vallie of oil alld r;as reservoir to the maximum by opti­
mizing recovery and production. and by reducillg 
expenditures a/ld production costs to the miniml/Ill 
rates. 

This definition implies a continuous team e ffo rt or 
experts, including geophys icists, geologists, geosta tisti­
ci ans, reservoir e ngineers, production e ngineers and 
econom ic-ana lysts from the discove ry of the field to its 
abandonment. Thi s concept has been applied only par­
tia lly and without cont inuity. 

4, RESERVE REPLACEMENT EXPENDITURES 

Analys is of expenditures into the ex ploration , devel­
opment and acquisition of reservcs on global, reg ional 

and com pany leve l is certainly the most important 
ac ti vi ty in direct ing hydrocarbon reserve manage­
ment st rategy. 

Table 2 shows the data for gro ups of western com­
panies (JOHNS & GAILEY, j 992) and fo r INA-Nafla­
plin for different time periods. INA-Naftaplin finan ci al 
data were often inconsistent due to the nature of the for­
me r econom ic and political sys tem . Exploration and 
devclopment expenditures we re ofte n burdened with 
irrclevant item s, while so mc expendit ures wh ich, 
according to current practice should have been incorpo­
rated were omitted. 

Since the process of intensive analysis of all expen­
ditures involved in the process of exploration, develop­
ment and production of oil and gas is relat ive ly new, it 
is to be expected that th is pioneering work could expe­
rience some corrcct ion s. Howewe r, est imat es derived 
on the basis of such data, in th e author's opin ion, 
shou ld not undc rgo major changes. Table 2 li s ts the 
data re lated to overall spending per barrel produced, 
which is an indication of the intensity of spending dur­
ing certain periods. A drop in investment by INA is evi­
dent in the pe riod 1990-1994, but over a longer period 
inves tm ents are at par or higher th an in certain groups 
of western com panics. Thc e ffccts of this can be seen in 
the last two columns. 

Spending d uring a particular period (especially in 
exploration) has a greater effect on reserves in the 1'0 1-
lowing period than in the one when they were in vested. 
Negative conscq ue nces of lower invest ments in the 



208 

7.0 

6.0 

5.0 

"'-l 4.0 
o 
" 

3.0 

L 
X,4.5 

"-
"-

6.3 

/ 

\ 
\ 

"'X 3 .7 , , , 

Geologia Croatica 49{2 

6.0 

/ 
~ 

\ 
- - - Development 

-- Exploratcrl 

/ \ 
~ 

38 

37 \ 
X, 

/ , 
3.2 / "-·X 

/ 'X 31 
"-

"-
'X/2.6 \\ \ 

2.0 2.1 
2.0 

1.0 

0.0 

1985 1986 1987 1988 1989 1990 
Year 

period from 1991-1994 (Fig. 3) remain to be identi fied. 
Spending per barrel of discovered reserves is also listed 
in Table 2. Overall exploration costs refer to discovered 

reserves together with revisions made during the pro­

duc tive life of a fi eld and considerably exceed the data 
for fore ign com panies. 11 also refers 10 development 
spending and particularly to the overall cos t of reserve 
replacement, except possibly for the period from 1986-
1990. 

In business circles, the rule is that total costs or 
reserve replaceme nt should not exceed 1/3 of product ' s 
selling price, if Olle is to ach ieve acceptable ret urns. 

5. ACQUISITION OF RESERVES 

We have already mentioned the importance of 
acquisition of reservcs on the stabilisat ion of business 

operations. Table 2 shows expenditures of foreign com­
panies for the acquisition of reserves . Such activities 
havc not bccn prcviously recordcd in TNA- Naftaplin. 

Companics arc buying (or selling) reservcs to stabi­
li ze the overall costs of reserve replacement. Figure 4 
shows reserve rep lacement costs by all methods and 
participation of reserve acquisition. 

We have already mentioned that initial estimates of 
discovcries based on exp loration are considerably 
upwardly revised (in INA by 6-38% and in the group of 
western companies by an ave rage or 40%) (Fig. 2). Oil 
compan ies which buy rcscrves on the market try to 
make reserve est irnates as re liabl e as possible and 
cxpect s ignifican t increases during deve lopment. Some 
analyses indica te a 15 % improvement in comparison 
with the initial estimates. One such analysis (JOHNS & 

\ 
\ ~ ~Jj'x 1.7 

\ 
0.9 

X 

1991 

X· _ _!,;!/ 
- -1 0

.
7 

1992 1993 1994 

Fi g. 3 Exploration and dev­
elopment expenditures 
per DOE produced in 
INA-Naftaplin. 

GAILEY, 1992) indicates a great dispersion of acquisi­
tion estimatcs. 

The Net Present Va lue (N PV) IO of future production 
estim ated at the time of purchase and compared to the 

acquisi tion price, differs from the re-estimateci (NPV)lO 
and paid price for acq uisition updated to reflect the time 
value of money at the time of revision of these transac­
Lions. 

The data indicate that some companies have overes­
timated purchased acquisitions by as much as th rec 
times, but some can expect 2-4 timcs greater profits on 
thcir investments. D iscovered fields , fields in develop­
ment or those in full product ion arc be ing purchased. 

INA-Naftaplin has made some attempts in that 
respect, but without success. 

An analysis of indicators showing effects of rescrvc 
replacement (Fig. 1) should lead to the strategic conclu­
sion that acquisition of reserves can reliably incrcase 
reserves at present and provide an impetus for the new 
eyele of reserve management based on modern con ­
cepts which this paper tried to outline. 

6. CONCLUSION 

The primary task of every oil company engaged in 
cxp loration and production of oil and gas is to increase 
reserves of hydrocarbons. In the precccding 20-year 
per iod INA-Naftaplin has , by exploration and develop­
ment activities, suecesfully replaced almost all pro­
duced quantities. It has also maintained the stabi li ty of 
hydrocarbon production in the process, but with a con­
siderable drop in oil production. 

This can mostly be attributed to the discovery of gas 
and gas-condensate fic lds and to the introduction or 



B~llk : I Iydroclrooll Reserves R..opl~ccl1lc!H - McthOds :ll1d Expellditun.:s 

100 

90 ~ 

80 

70 -
-

60 

% 50 F= = [f\ ~ = -
40 

30 
= r= / 1\ 

20 

10 

0 

- -
J ~ / 

--" ,,-

- -
~ - -

-f'. f----
~ 

" II 'a. 
" 

-

r= -

,. -

80 

70 

60 

50 

40 10 9 $ 

30 

20 

10 

2m 

Fig. 4 Worldwide capi· 

1980 198 1 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 
o tal expe ndilllres ror 

exp lora tio n und dev­

c=J Exploration & development c=J Reserve acquisition _ Proved acquisillOn (%) 
elopment and proved 
reserve acqllisi tions. 

seconda ry rccovery mcthods in somc field s . The 
reserve replaccmcnl ratio in thc last 5 years is bclow 
50%, partly caused by lo wer invcs tmcnt in ex plo­
rations, and parll y becausc Ihe remaining pOlcnt iai o f 
our domes tic exploration area has 110t been able to pro­
vide ne w reserves sullic ien t to rep lacc the quantiti es 
produced , panicu larly where oil is co ncerned. There­
fore our rcscrve replacemcnt costs are somewhat higher 
than the average for wes tern com pani es. Remaining 
reserves of oil arc mostly to bc fo und in very old rie lds 
and the scleclive introduction of new technologies anci 
EOR processes could rai se their production economics. 
Results of explorali on activ it ies abroad to date onl y 
st ress the necessity for its further intens ification. In the 
next several yea rs results wh ich wo uld stab ilize the 
reserves or o il and prevent funhcr drop in producti on 
arc unlikely. Acqui sition of reserves would be a proper 
strategic decision at present. It wou ld employ the con­
siderab[e human potentia l of the company and prov ide 
an impet us for the new cycle of rese rve management 
based on princ iples used in modcrn western oil compa­
nICS. 

7. REFERENCES 

BAUK, A., CU BRIC, S., SAR IDJ A, V. & GORI CN IK, 
B. ( [988): Nov i pristup razrad i lezista naft e i p[ina.· 
Na rta , 39/1 1·12,659·672, Zagreb. 

JOH NS, e.E. & GAIL EY, J.D. (1992) : A rev iewal' oi l 
and gas reserve acquisition activity and its contri bu­
tion to company pcrf'ormancc.- SPE Oil and and 
Gas Econom ics, Finance & Manage me nt Confer­
ence, 28·29.4. I 992.,272·296, London. 

S.P. E. ( 1987): Defin iti ons for oil and gas rese rves.­
JOllr. Pel. Tech., 39/5, 577·578. 



210 Gcologi:1 CrO:lIiC:149/2