An Old Formula May Overstate U.S. Oil Supplies

Jan Arps is the most influential oilman you’ve never heard of. In 1945, Arps, then a 33-year-old petroleum engineer for British-American Oil Producing Co., published a formula to predict how much crude a well will produce and when it will run dry. The Arps method has become one of the most widely used measures in the industry. Companies rely on it to gauge the profitability of drilling, secure loans, and report reserves to regulators. When Representative Ed Royce (R-Calif.) said at a March 26 hearing that the U.S. should start exporting its oil to undermine Russian influence, his forecast of “increasing U.S. energy production” could be traced back to Arps.

The problem is the Arps equation has been twisted to apply to shale technology, which didn’t exist when Arps died in 1976. John Lee, a University of Houston engineering professor and an authority on reserves, says billions of barrels of untapped shale oil are counted by companies relying on limited drilling history and tweaks to Arps’s formula that exaggerate future production. “Things could turn out more pessimistic than people project,” says Lee. “The long-term production of some of those oil-rich wells may be overstated.”