US oil and gas reserve growth reaches five-year high
Houston, 14 June 2011 – End-of-year oil reserves grew 11% and gas reserves grew 12% in 2010, the strongest combined annual growth posted in the five-year period analyzed by Ernst & Young LLP in its 2010 US E&P benchmark study. Ending oil reserves for the companies reviewed were 17.8 billion barrels while ending gas reserves were 174.3 Tcf as a result of strong shale development. The benchmark study includes the 50 largest companies based on 2010 end-of-year oil and gas reserves estimates. Activity related to XTO Energy (which was acquired by ExxonMobil in 2010) is also included in the study. The full report is available at www.ey.com/us/oilandgas.
Reserve replacement - rates and costs
Technological advances enabled increased shale oil and gas development and significant increases in reserve or production replacement rates. The oil production replacement rate from all sources – including extensions and discoveries, improved recovery, revisions, purchases and sales of proved reserves – was 234% in 2010. The all sources natural gas production replacement rate was 252% in 2010.
More importantly, production replacement rates, excluding purchases and sales, were also very strong in 2010 at 205% for oil, 249% for gas, and 232% on a combined BOE basis.
Reserve replacement costs on a total basis, including proved property acquisitions, were up once again, increasing to $15.26 per BOE in 2010 from $12.78 per BOE in 2009. Reserve replacement costs on a finding and development basis, excluding proved property acquisitions, increased to $17.84 per BOE, up from $13.01 per BOE in 2009.
“Oil prices generally traded in the $70 to $80 per barrel range for most of 2010,” said Marcela Donadio, Americas Oil & Gas Leader for Ernst & Young LLP. “And while natural gas prices were weak, they were stable in 2010. This created a healthy environment for investing in finding reserves and the technology for producing them. Stability in price – in spite of an uncertain regulatory environment – made reserve replacement and growth possible.”
Proving an active year for industry acquisitions, this year’s E&P benchmark study finds that total upstream spending – including acquisitions of proved and unproved properties, as well as exploration and development spending – more than doubled in 2010, up from $72.8 billion in 2009 to $177.9 billion in 2010.
|US - upstream spending (billions) (a)|
|2009||2010|| Increase |
|Proved properties acquired||$ 3.9||$ 42.2||984%|
|Unproved properties acquired||$ 9.6||$ 59.3||519%|
|Exploration||$ 14.3||$ 15.5||8%|
|Development||$ 44.8||$ 60.8||36%|
|Other||$ 0.2||$ 0.1||(61)%|
|Total||$ 72.8||$177.9||$ 144%|
|(a) Includes the 50 largest companies based on 2010 end-of-year oil and gas reserve estimates. Activity related to XTO Energy has also been included.|
ExxonMobil’s acquisition of XTO Energy accounted for 51% of proved property acquisition costs and 40% of unproved property acquisition costs in 2010. Apache’s acquisitions of Mariner Energy and certain Devon Energy and BP assets also contributed significantly to proved and unproved property acquisition costs. Other major contributors to the sharp increases in acquisitions included Denbury Resources and Chesapeake Energy.
Capital spending for exploration was up 8% in 2010, while development spending increased 36%, primarily due to shale development, both for gas and oil. On a combined basis, the increase in exploration and development spending was primarily driven by ExxonMobil, Chesapeake Energy and EOG Resources. Only four of the companies in the study saw decreases in their combined exploration and development spending in 2010.
“It is clear that oil and gas producers are accumulating and developing shale properties,” added Donadio. “Key to capitalizing on these prospects, in addition to consistently strong commodity prices, will be resolution of fracking concerns which the industry is acting aggressively to address.”
Revenue and re-investment
Upstream revenues for the companies increased 19% from $121.1 billion in 2009 to $143.8 billion in 2010, driven by higher oil and gas prices. Upstream revenues averaged $43.82 per BOE in 2010, up from $37.09 per BOE in 2009.
Production costs rose 10% from $35.6 billion in 2009 to $39.1 billion in 2010, averaging $11.90 per BOE in 2010 compared to $10.91 per BOE in 2009. Lease operating expenses increased 5% in 2010 and production taxes were up 27%.
The companies’ plowback percentage, total upstream spending as a percentage of netback (revenues less production costs), increased to 170% in 2010. This was the highest of the five-year period. Previously, in 2006, the plowback percentage reached 121% as a result of an increase of investment activity driven by a relatively high priced commodity environment.
This year’s study finds that in 2010 the industry recovered significantly from the economic downturn in 2008-09, benefitting from new shale discoveries and technology advances, higher commodity prices and price stability. With strong revenue and net income gains in 2010, the companies examined invested heavily to develop supplies to meet expected demand growth from economic recovery. With an 11% increase in oil reserves and a 12% increase in gas reserves, the industry is well positioned to meet future demand.
More about the study
The benchmark study is a compilation and analysis of certain oil and gas reserve disclosure information reported to the Securities and Exchange Commission and covers the five-year period from 2006 through 2010. The companies included in the study account for approximately 93% of total US oil reserves and approximately 71% of total US gas reserves, based on January 1, 2011 reserve estimates published by the Oil & Gas Journal.
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