US oil and gas capex, revenues and reserves continued to soar in 2014 reporting
Houston, 3 June 2015
EY releases 8th annual US oil and gas reserves study.
Low oil prices in December had little impact on 2014 reporting of US oil and gas industry spending, reserves and revenues, according to EY’s eighth annual US oil and gas reserves study. In contrast to 2013, total capital expenditures for the companies studied increased 16 percent to US$200.2 billion in 2014. Likewise, revenues rose 10 percent while end-of-year oil and gas reserves grew 8 and 7 percent respectively.
EY’s US oil and gas reserves study analyzes US exploration and production (E&P) spending and performance data for the past five years for the largest 50 companies based on end-of-year oil and gas reserve estimates.
“Total capital expenditures for study companies have more than tripled from 2005 to 2014 – even with a big cutback in spending during the 2009 financial crisis,” said Herb Listen, Assurance Oil & Gas Co-Leader for Ernst & Young LLP in the US. “However, due to volatile oil prices in the first quarter of 2015, we have seen US producers significantly reduce capital expenditures at an average of 20 to 25 percent in recent months.”
John Russell, Assurance Oil & Gas Co-Leader for Ernst & Young LLP in the US, echoed Listen’s sentiment.
“In 2012, our report showed the impact of low natural gas prices as producers shifted their focus to oil,” Russell said. “Looking forward to 2015 end-of-year reporting, we expect more impairments, with significantly reduced capital expenditures, revenues and year-end reserves, if the current commodity prices continue through the end of the year.”
During 2014, all categories of spending increased as total capital expenditures reached US$200.2 billion in 2014 compared with US$173.1 billion in 2013.
Proved and unproved property acquisition costs accounted for a significant portion of this growth as each rose more than 20 percent to US$27.3 billion and US$27.2 billion respectively. At the same time, development costs increased 15 percent to US$121.3 billion and exploration costs rose 6 percent to US$23.8 billion.
Independents led the way in both development and exploration growth. For development, the independents studied reported a 23 percent increase compared to 13 percent for the large independents and 10 percent for the integrateds. For exploration, the independents’ spending rose 50 percent in 2014 while spending by integrateds and large independents declined.
“Although 2014 capital expenditures did not reflect current low oil prices, US producers have made substantive adjustments to their capital expenditure plans for 2015,” said Russell. “The impact of the reductions in capital expenditures will be evident in our study next year.”
Revenues and profits
For the companies studied, although revenues increased 10 percent during 2014, all major categories of costs also rose and significant impairments were recorded. As a result, after-tax profits for the study companies declined 13 percent to US$28.8 billion. An increase in combined oil and gas production of 9 percent drove revenue growth.
Impairments related to low commodity prices at year-end had a notable impact on peer group performance. In total, impairments of US$22.9 billion were recorded during 2014. These impairments were primarily related to full cost ceiling test charges for those independents that follow the full-cost method of accounting for oil and gas properties and certain properties held for sale. The impact of impairments on the integrateds was less significant as their after-tax profits increased 27 percent. In contrast, the large independents and independents saw after-tax profits decreases of 22 percent and 19 percent respectively.
“Commodity price declines, particularly in the oil market toward the end of 2014, substantially impacted financial performance for some of the study companies – primarily in the form of impairments stemming from ceiling test charges from full cost companies and certain properties held for sale, “ Listen said. “The full cost ceiling test charge trend is likely to continue during 2015 as evidenced by some substantial impairments reported in the first quarter.”
Oil and gas reserves
Led by the large US independents, oil and gas reserves as well as production continued to grow during 2014. Over the course of the five-year study time period, the large independents increased their oil production by 88 percent, oil reserves by 74 percent, gas production by 31 percent and gas reserves by 28 percent.
During 2014, oil reserves for the study companies grew 8 percent to 27.2 billion barrels. Oil production jumped 18 percent to 2.1 billion barrels in 2014. Both purchases and sales of oil reserves reached record highs for the study period. Purchases of oil reserves accounted for 1.4 billion barrels while sales of oil reserves reached 833.3 million barrels in 2014.
Source: Data calculated in EY’s US oil and gas reserves study
End-of-year gas reserves for the study companies grew 7 percent to 190.8 Tcf in 2014. Gas production rose slightly to 13.5 Tcf. Purchases of gas reserves accounted for 6.9 Tcf while sales of gas reserves were 9.5 Tcf during 2014.
“There are numerous variables that impact reserve estimates, including commodity prices and the related cost of producing as well as multiple geological and geophysical considerations,” Listen explained. “However, we will not be surprised to see some downward reserve revisions at the end of 2015 if oil and gas prices continue at current levels for the remainder of the year.”
About the study
The US oil and gas reserves study is a compilation and analysis of certain oil and gas reserve disclosure information reported to the Securities and Exchange Commission. This report presents US upstream sector results for the five-year period from 2010 through 2014 for the largest 50 companies based on 2014 end-of-year oil and gas reserve estimates.
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This release has been issued by Ernst & Young LLP, an EY member firm serving clients in the US.
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