Reply #34: The issue is who do you want to believe. [View All]

There is an old saying, To Trust a Man look at his motive. Basically people who have incentive to lie will lie, those who have incentive to tell the truth will tell the truth.

When it comes to Peak, you have two sources of how much oil is in Persian Gulf (All other fields are secondary to these fields). First are the present owners of those fields, Iraq, Saudi Arabia and Kuwait. Prior to the early 1970s these fields were owned and run by the Seven Sisters and as such the reports of the Seven Sisters are the second source of how much oil are in these fields.

Now OPEC has had reasons to overstate how much oil they had in the ground since the mid-1980s. In the mid-1980s you had an oil glut. To keep oil prices up OPEC had to cut back production. OPEC decided that any future production will be based on how much oil each member of OPEC had in the ground. Right away everyone started to increase how much oil they had in the ground. These are the number given by OPEC to this day. No one believes them, but if true Peak will not happen to 2020.

The next number used are based on the how much the seven sisters said were in those same field prior to the fields being nationalized in the early 1970s. When these estimates are used you come to the 2008-2010 estimate. These are assumed to be accurate for the estimate were made in the 1960s when the Security and Exchange Commission (SEC) acted with vigor against "false or misleading" statements by Corporations. Thus the Seven Sisters had good reasons to tell the truth, they did not want to be found liable by the SEC for less than truthful statements.

The third set of number assumes the Seven sisters are lying, that the Seven Sisters OVER estimated the size of the fields. The reason for the over-estimation had been the Seven Sister experience with host countries nationalizing the oil fields in Mexico (1938) and Iran (1954). In Mexico it took ten years before an agreement as to how much the oil company had to be paid for the oil fields taken by Mexico (Iran was quicker but the Nationalization of the Iranian Oil Fields was one of the Reason for the Coup that year installing the Shah).

Anyway these nationalization (and mostly the Mexican Nationalization) scared the Oil Companies. Mexico had wanted to use the lowest estimate of the oil in the ground (What was called "proven" Reserves) while the oil Companies wanted to use a higher figure ("Proven and Possible" Reserves). The same Oil Companies had used the same LOWER figure when filing with the SEC, but pointed out those numbers did not include possible but not proven reserves. THE SEC forbidden the use of "Possible" reserves since it was also possible for those reserves NOT to exist. On the other hand the Oil Companies knew that at least some of the "Possible" oil existed but just did not know how much.

The above sounds like an Accounting problem (and it is). The Problem came to life in the Mexican takeover for Possible exceeded Proven and the Oil Companies wanted to be paid for not only the "Proven" Reserves but a good part of the "Possible" reserves (with the Mexican taking the risk of the "Possible" reserves NOT existing, and the GAIN if the Possible did exist).

Now over a number of Fields "Possible" can be analysis to become "probable" with the losses in some fields overcoming the gains in others. Thus over a number of fields "Possible" and "Probable" can come close to each other. For financial Accounting proposes the SEC does not permit this, but when it comes to valuation for sale it is done all of the time.

I go through the above to show you the difference in prices is based n what estimate you are using. The oil Companies have always claimed that do to fear of the SEC their estimates of the Persian Gulf Fields were accurate and meet SEC rules. The question is what if the estimates did not? What if do to fear of another set of Nationalization the Old Companies OVER ESTIMATED the field size so if the fields were ever taken over the Oil Companies would get higher value than they did in Mexico?

This is important for all of the Estimate on Peak involving Oil Company data is based on "Proven and Probable" NOT "Possible" field size. Thus if the oil company used "Possible" instead of "proven" you have a further over-estimation of the oil fields in the Persian Gulf. if true Peak occurred in 2004.

One last comment, all of the above estimates are plus or minus 2 years, thus when someone says 2008, it may be 2006 or 2010. If someone says 2004, it maybe 2002 or 2006. Certain factors will vary the time flow, in recessions oil use declines, in booms oil use increase, how oil is produce in any one field will go up and down by small amounts even as the overall tread in up or down. Thus all dates are ESTIMATES with some leeway.