Ernst & Young LLP releases results of 11th annual US oil and gas reserves and production study.
Nearly five years after the oil and gas industry weathered a global downturn, the majority of US exploration and production (E&P) companies are operating leaner, are more technologically advanced and — most important to shareholders — are more profitable than at any point since 2014, according to the 2019 Ernst & Young LLP US oil and gas reserves and production study.
According to analysis of US E&Ps based on end-of-year oil and gas reserve disclosures from the top 50 companies with largest US oil and gas reserves, the study reported expenditures of US$136.4 billion in 2018 while also realizing revenues of US$180.9 billion — the highest since 2014. Meanwhile, production volumes increased, while production costs stayed consistent with 2017 and 2016 levels on a per-barrel of oil equivalent (BOE) basis.
“It’s clear the oil and gas industry is benefiting from the lessons of the 2014 downturn — a focus on cutting costs while maximizing proved reserves and using technology to streamline the production process,” said Herb Listen, US Oil & Gas Assurance Leader, Ernst & Young LLP. “The transformation from 2014 to 2018 is striking, and it highlights the resilience of the sector. Across the board, our study found record numbers — from capital expenditures to production and revenues.”
Capital expenditures
At US$136.4 billion, capital expenditures in 2018 of the companies studied reached the highest level since 2014 and represented a 16% jump from 2017 and a 55% increase from 2016.
While investment on unproved properties acquisition decreased by 52% from the prior year, growth was observed in all other categories of capital spend — proved properties, exploration and development expenditures. Proved reserve acquisition costs alone doubled in comparison to 2017 as a result of several significant acquisitions made by companies in the study; five of the study’s 50 companies accounted for 88% of all proved properties acquisitions. Development costs also increased, jumping from US$61.1 billion in 2017 to US$80.6 billion in 2018. While the independents’ investment in development expenditures stayed stable, the integrateds and the large independents increased their investment in this category by 43% and 49%, respectively.
Revenues, production, profits and reserves
Alongside the rise in spending, companies in the study also saw a healthy increase in revenues to US$180.9 billion, up 32% from 2017. As a result of higher commodity prices and controlled costs, the companies delivered after-tax earnings of $34.1 billion, the highest since 2014. These happened in the year when US crude oil production reached a record level of 11 million barrels per day.
Similarly, oil production for the study’s companies also hit the highest level in the study period, surging 11% from 2017 to 2.7 billion barrels. Overall, oil production increased by 23% from 2014 to 2018, with the large independents’ production growing 38%, compared with 26% growth for the integrateds and an 8% decrease for the independents.
An increase in mergers and acquisitions resulted in 1.9 billion barrels of purchased oil reserves and 2.1 billion barrels of sold oil reserves — again the highest during the survey period. All told, combined oil reserves comprised 32.6 billion barrels — a new record over the prior five years.
Extension and reserves were also strong on the gas side, with 13.5 trillion cubic feet (tcf) of production, a 6% increase from 2017 — a robust discovery of 31.8 tcf. All told, gas reserve sales again broke a record at 16.3 tcf, the highest of the study period.
“The industry’s cost-cutting in recent years, including 2018, is inspiring, but there is opportunity to drive even more value,” said Jeff Williams, Global Oil & Gas Advisory Leader, EY. “As oil and gas companies face continued pressure on pricing and their ability to access new assets, digital technologies — like intelligent automation, artificial intelligence, the industrial Internet of Things and integrated technology platforms — stand at the ready to help the industry realize transformation and growth across the value chain.”
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About the study
The US oil and gas reserves and production study is a compilation and analysis of certain oil and gas reserve disclosure information as reported by publicly traded companies in their annual reports filed with the United States Securities and Exchange Commission (SEC). This report presents the US E&P results for the five-year period from 2014 through 2018 for the largest 50 companies based on 2018 end-of-year US oil and gas reserve estimates, according to available information.
About EY
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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.
