Exploration and development spending fuels growth in worldwide oil and gas reserves

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  • Nearly 20% increase in exploration and development spending in 2011 to US$384b
  • 2% growth in combined worldwide oil and gas reserves in period
  • US shale gas development a “game changer” for the sector

Singapore, 6 December 2012 – As a result of growth in Asia-Pacific gas reserves, investments in Canada’s oil sands and the dramatic increase of US shale reserves, worldwide oil and gas reserves increased in 2011. Worldwide oil reserves grew by 1% in 2011, while gas reserves rose by 4%. Oil and gas revenues experienced 27% growth in 2011.

Underpinning this growth was an increase in combined exploration and development spending of19% in 2011 to US$384b, according to EY’s annual Global oil and gas reserves study, which analyzes the worldwide and regional exploration and production (E&P) results for 75 companies for the five-year period from 2007 to 2011.

Dale Nijoka, EY’s Global Oil & Gas Sector Leader says: “The growth of gas reserves in Asia-Pacific is being aided by the activity in Australia which could emerge as the world’s biggest supplier of liquefied natural gas (LNG) in the next decade. The better capitalized companies will continue to increase investment in LNG projects into 2013. Increased E&P spending overall will undoubtedly show greater worldwide reserve growth next year.”

Sanjeev Gupta, Asia-Pacific Oil & Gas Leader at EY adds: “The gas discoveries in Australia in 2011 is an exciting development. However, the country’s oil and gas sector face the challenge of rising cost pressures due to inadequate skilled manpower, land restrictions, currency fluctuations and rising raw material costs. Further, the industry faces heightened scrutiny and tighter regulation in the development of coal seam gas due to its impact on the local environment. This is likely to increase costs and may lead to project delays.”


Capital expenditures
Total worldwide capital expenditures for the study companies were US$480.5b in 2011, representing a 3% decrease from 2010, due to lower property acquisition activity in 2011. The companies however, made significant investments to identify new resources and develop existing reserves with combined exploration and development spending of US$384.2b in 2011, an increase of 19% from 2010.

Despite relatively high oil prices, strong reserve additions recorded in 2011 led to a decrease in the per barrel of oil equivalent (BOE) cost to find and develop new reserves. This figure dropped from US$17.89 per BOE in 2010 to US$16.72 per BOE in 2011.


Oil and gas reserves
Worldwide end-of-year oil reserves have increased each year of the study period and grew a further 1% in 2011, with Canada and the US reporting the largest increases. Worldwide oil production declined 4% in 2011 as production increases elsewhere were outweighed by declines in the Africa and Middle East region, largely related to political instability, and declines in Europe which were structurally related to several years of underinvestment.

Oil production replacement rates have been strong in recent years with a finding and development (or excluding purchases and sales) rate of 128% in 2011 and a three year (2009-2011) average of 126%.

Source: EY’s Global oil gas reserves study, 2012


Worldwide end-of-year gas reserves rose 4% in 2011 with total growth of 27% over the fiveyear study period. Natural gas production increased 4% in 2011. The largest increases in both gas reserves and gas production in 2011 were seen in Asia-Pacific and the US.

The growth in gas reserves in 2011 led to a finding and development (or excluding purchases and sales) gas production replacement rate of 164%, representing the highest level seen in the five-year study period.

“The success of shale gas development in the US has been a game changer for the oil and gas industry,” says Nijoka. “It has fueled efforts to exploit shale reserves in other countries and the application of shale gas technology to tight oil resources has been key in revitalizing the US oil industry.”

On Asia-Pacific, Gupta has confidence in the industry’s growth potential: “The growing energy demand in Asia-Pacific has become one of the key opportunities for oil and gas companies that are striving to expand their client base amid declining demand in developed economies. Going forward, we see strong potential for large supply deficits in the region stemming from a robust growth in the demand for energy and a limited growth in domestic production and reserves. Except for Australia, all the Asia-Pacific countries are likely to witness a demand for oil and gas that exceeds domestic production.”


Revenues and profits
Increases in oil and gas prices fueled a 27% increase in revenues from oil and gas producing activities for companies featured in the study, with total revenues reaching US$1.2t. Production costs rose 31% in 2011 as the costs for labor, services and other expenses increased and production taxes climbed. Worldwide after-tax upstream profits increased by 29% from 2010, with the companies’ profits reaching US$319.9b in 2011.

“In some respects, financial results for the oil and gas industry were mixed in 2011. Prices were at high enough levels that the companies’ saw a substantial increase in revenues, but cost inflation is returning to the upstream segment. In this environment, cost control and risk mitigation are become increasingly important as companies strive for growth,” concludes Nijoka.

 

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Note to editors:
The Global oil and gas reserves study is a compilation and analysis of certain oil and gas reserve disclosure information reported by companies in their annual reports filed with the US Securities and Exchange Commission or in their publicly available annual reports. This report presents the worldwide and regional exploration and production (E&P) results for 75 companies for the five-year period from 2007 through 2011. The results for these companies are generally representative of the E&P industry as a whole, with the exception that many national oil companies do not publicly disclose financial and operational data and their performance trends may vary significantly.


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