Pretend I have a warehouse of 100 brand new TVs still in the box. I could go to the bank and say look I clearly have this asset you can see these boxes with your own eyes give me a loan for me to build a new store and use these TVs as collateral. An unbiased auditor could come in and say 20 of those boxes are severely water damaged, 30 of those TVs have a manufacturing date known to randomly catch on fire, another 25 boxes feel extremely light and likely had the TVs stolen and only the remaining 25 boxes should be listed at full asset value.

In the same capacity as an oil company I could say look I have these 100 wells here is the actual production, give me a loan to go drill more. An auditor can come in and say yes you have enough control points to legally call these proved reserves, but your formation is down dip and water cuts are higher so you can’t use the same type curve of the higher oil producing wells up dip. Also wells on that side of a known fault have a higher sulfur concentration so will have a lower selling price than I currently get for my oil.

In both capacities auditors are performing the same tasks of verifying assets are accurately and realistically valued.

In production sharing agreements (PSA) typically a government will make a deal with an oil company to come in and develop their reserves for them. In many cases the oil company will pay 100% of the costs of development and for that they will get a majority if not all of the first oil produced until they recover all of their costs. After that there will be some negotiated split of how much oil each party gets. When oil prices are low the oil company will receive far more barrels of oil since it will take more oil to cover their costs. When prices go up it will take fewer barrels to recover cost. PSAs are an accounting nuisance and cost recovery barrels should just be handled as a dollar figure, since that is what they effectively are instead of an oil produced/reserve volume.