Bear Stearns: Majors replaced 101% of world oil and gas production in 2002


By OGJ editors
HOUSTON, Aug. 1 -- Major oil companies replaced 101% of oil and natural gas world production last year, which was short of the 2001 performance of 120% and down from a 10-year average of 119%, said Frederick Leuffer, analyst for Bear Stearns & Co., New York.

Industry has replaced production fully for 8 consecutive years. For the 12 companies covered in the Bear Stearns' survey, E&P spending totaled $51 billion in 2002—a 4.8% year-over-year increase compared with the previous high of $48.6 billion in 2001.

Companies replaced 110% of crude oil production, below the 10-year average of 122%. Gas replacement averaged 86% last year, well short of 123% recorded in 2001 and down vs. the 10-year average of 116%.

Poor reserve replacement records at ConocoPhillips and the Royal Dutch/Shell Group contributed to the 2002 results, Leuffer said.

"Collectively, these two companies replaced only 39% of their 2002 oil and gas production. If the two companies had replaced reserves at their respective 10-year average rates, we calculate the industry would have replaced 119% of production, in line with the 10-year industry average," he said.

Finding and development costs
Finding and development (F&D) costs increased sharply in 2002. F&D costs from discoveries, extensions, enhanced recovery, and revisions were $7.22/boe last year, up 24% from the previous year, and 46% above the 10-year average of $4.93/boe.

F&D costs rose for all companies except ChevronTexaco Corp., ExxonMobil Corp., and Marathon Oil Corp.

The 2002 results were skewed higher by poor reserve replacement and higher spending at ConocoPhillips and the Royal Dutch/Shell Group, Leuffer said. The companies attributed much of their acquisition costs to unproved property acquisitions.

Conoco Inc. and Phillips Petroleum Co. merged (Sept. 9, 2002, p. 42). Shell Resources PLC, a wholly owned member of Royal Dutch/Shell, bought Enterprise Oil PLC (OGJ, Apr. 8, 2002, p. 39).

"We estimate 2002 costs would have been $5.65/boe after adjustments for the companies' acquisition costs and poor replacement records. High unproved property acquisition costs are not expected to be repeated in 2003," Leuffer said.

Despite increased drilling activity and higher costs for oil field equipment and other services, he believes F&D costs will decline sharply in 2003.

Reserve replacement
US reserve replacement trailed the rest of the world. Last year, the industry replaced 75% of its liquids production and 40% of gas production in the US. That compared with 147% oil replacement and 108% gas replacement for the rest of the world.

F&D costs averaged $14.27/boe in the US compared with a rest-of-the-world average of $7.21/boe. The 2002 performance was comparable with the 10-year average performance.

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