The world’s crude oil reserves totalled 1.656 trillion barrels at year-end 2015 compared with 1.654 trillion a year earlier, while total natural gas reserves were 6.95 quadrillion cubic feet, up 30.7 trillion cubic feet from those reported a year ago
The world’s crude oil and condensate reserves total 1.656 trillion barrels at year-end 2015 compared with 1.654 trillion a year earlier, according to Oil & Gas Journal’s annual assessment.
Total natural gas reserves are 6.95 quadrillion cubic feet, up 30.7 trillion cubic feet (tcf) from those reported a year ago. While US reserves continue to break records, most changes elsewhere are small.
Meanwhile, an earlier study of global oil and gas reserves by Ernst & Young (EY) finds that annual worldwide oil and gas reserves rose while profits fell at the end of 2014.
Worldwide oil and gas reserves increased by 11 per cent and 3 per cent, respectively, while capital expenditures among the oil and gas study companies increased 25 per cent in 2013, compared to 2012, according to EY’s annual Global oil and gas reserves study. The report also found that total upstream spending for the study companies more than doubled over the five-year period from $315 billion in 2009 to $678.9 billion in 2013. This study analyses the worldwide and regional exploration and production (E&P) results for 75 companies for a five-year period from 2009 to 2013.
A key component of increased spending, property acquisition costs soared in 2013 with proved property costs reaching $115.6 billion, which is the highest level of the five-year study period. Unproved property acquisition costs were $63.1 billion in 2013, representing a 24 per cent increase over 2012. The US, Africa and the Middle East were the only regions to see a decline in total property acquisition costs in 2013.
Dale Nijoka, EY’s Global Oil & Gas Leader, says: "Continued strong upstream capital investment demonstrates the industry’s confidence in long-term opportunities. However, in light of current price volatility, we expect to see significant pressure to lower rising production costs as well as additional investment in technologies and techniques that increase efficiencies and drive costs down."
Capital expenditures
Total worldwide capital expenditures for the companies in the study were $678.9 billion in 2013. Exploration spending rose 5 per cent higher to $87.9 billion in 2013, compared to $83.4 billion in 2012 with the increased spending in Brazil led by Petrobras contributing significantly to the total. Meanwhile, development expenditures grew 8 per cent in 2013 to reach $411.2 billion. On a regional basis, Asia-Pacific saw the largest increase with development spending increasing by 15 per cent ($15.2 billion). Combined exploration and development spending by integrated companies increased by 12 per cent, compared to a 5 per cent increase by the large independent companies. Combined spending by independent companies decreased by 14 per cent in 2013 as depressed natural gas prices in the US and Canada have taken a toll on their cash flows and spending ability.
Revenues and profits
Worldwide after-tax profits declined 4 per cent from $270.3 billion in 2012 to $258.7 billion in 2013. Only the US and Canada saw increases in after-tax profits. Production costs increased 7 per cent to $389 billion in 2013 primarily due to increased lease operating expenses (9 per cent increase) and production taxes (4 per cent increase). Depreciation, depletion and amortisation charges rose marginally to $249.8 billion from $248.2 billion in 2012. Depressed natural gas prices in the US did have some impact as several large oil and gas companies recorded impairments greater than $1 billion in 2013.
Nijoka adds: "Production increases coupled with softening demand put pressure on pricing. As a result, 2013 production growth resulted in only a slight increase in global revenue, which was offset by rising costs, creating a worldwide fall in after-tax profits."
Oil reserves
Strong acquisition activity in 2013 led worldwide end-of-year oil reserves for the study companies to increase by 11 per cent to 168.6 billion barrels. The largest oil reserves growth was recorded in Asia-Pacific and was attributed to Rosneft’s purchases of reserves from companies that are not included in the study. Oil reserves also notably increased in the US and Canada.
Worldwide oil production showed strong growth rising by 6 per cent to 12.3 billion barrels in 2013 and again, Asia-Pacific led the pack, recording a 17 per cent increase. The US followed with a 12 per cent gain in oil production. The oil production replacement rate dipped to 115 per cent, excluding purchases and sales in 2013, compared to the five-year study period high of 149 per cent seen in 2012.
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EY O&G reserves |
Gas reserves
Worldwide end-of-year gas reserves increased by 3 per cent to 643.6 tcf. Not surprisingly, the US saw the largest increase in gas reserves with its end-of-year reserves growing by 9 per cent. Extensions and discoveries were strong at 59.6 tcf in 2013, but did decline by 8 per cent compared to 2012. Worldwide gas production decreased marginally compared to 2012.
Nijoka concludes: "As expected, due to the pricing and supply dynamics in the global market, worldwide gas reserves increased slightly while production decreased. Once again, Asia-Pacific led the way in the
US oil and gas reserves continued to soar
Low oil prices in December had little impact on 2014 reporting of US oil and gas industry spending, reserves and revenues, according to Ernst & Young (EY’s) eighth annual US oil and gas reserves study. In contrast to 2013, total capital expenditures for the companies studied increased 16 per cent to $200.2 billion in 2014. Likewise, revenues rose 10 per cent while end-of-year oil and gas reserves grew 8 and 7 per cent respectively.
EY’s US oil and gas reserves study analyses 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," says Herb Listen, Assurance Oil & Gas Co-Leader for Ernst & Young 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 per cent in recent months."
John Russell, Assurance Oil & Gas Co-Leader for Ernst & Young in the US, echoes Listen’s sentiment. "In 2012, our report showed the impact of low natural gas prices as producers shifted their focus to oil," Russell says. "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."
Capital expenditures
During 2014, all categories of spending increased as total capital expenditures reached $200.2 billion in 2014 compared with $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 per cent to $27.3 billion and $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 $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," says 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 per cent 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 per cent to $28.8 billion. An increase in combined oil and gas production of 9 per cent drove revenue growth.
Impairments related to low commodity prices at year-end had a notable impact on peer group performance. In total, impairments of $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 per cent. In contrast, the large independents and independents saw after-tax profits decreases of 22 per cent and 19 per cent 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 says. "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 per cent, oil reserves by 74 per cent, gas production by 31 per cent and gas reserves by 28 per cent.
During 2014, oil reserves for the study companies grew 8 percent to 27.2 billion barrels. Oil production jumped 18 per cent 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.
End-of-year gas reserves for the study companies grew 7 per cent 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 explains. "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."
US oil and gas reserves study 2015
The oil and gas industry saw oil prices still recovering from the global financial crisis at the beginning of the study period in 2010. Prices were relatively strong and stable from 2011 through 2013, but by December 2014 West Texas Intermediate (WTI) had declined to $69 per barrel. Natural gas prices generally languished throughout the study period, with 2012 being the low point.
