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IHS Herold: Global reserves fall in 2008

Paula Dittrick
OGJ Senior Staff Writer

GREENWICH, CONN., Sept. 24 -- Oil and gas companies’ 2008 global investment for exploration and development projects totaled $492 billion—a 21% increase from 2007—yet oil and gas reserves fell, according to a report from IHS Herold Inc. and Harrison Lovegrove & Co. Ltd.

In the latest annual upstream performance review, the two companies reported that high oil prices during most of 2008 helped industry to generate record cash flow of $590 billion, up 36% from 2007. Report highlights were discussed Sept. 23 during the IHS Herold Pacesetters Energy Conference in Greenwich, Conn.

Industry’s 2008 cash flow exceeded capital spending by $100 billion. Cash flow per boe increased 35% from 2007 to $29.66/boe. Last year marked the second consecutive year cash flow exceeded investment, the report said.

The 2009 Global Upstream Performance Review is an annual analysis of 232 oil and gas companies based on reports filed with the US Securities and Exchange Commission and other similar agencies worldwide. 

Outlook for 2009
“It is a very capital-intensive job to maintain reserves,” said Nicholas Cacchione, IHS Herold senior vice-president and codirector of equity research. He expects reserves probably will drop in 2009 unless finding and development costs see a dramatic decline.

In 2008, world oil reserves declined nearly 3%, primarily due to a 5.2 billion bbl decline in revisions that stemmed from reduced commodity prices. Natural gas reserves grew by 3%, the same as the past 5 years. Gas production accelerated nearly 5% to 44.2 tcf.

Reserve replacement costs surged to $23.44/boe, up 70%, while finding and development costs rose 66% to $25.50/boe, due to a sharp drop in positive reserve revisions. Reserve additions, both from all sources and via the drillbit, were down over 20%.

During 2008, worldwide oil and gas revenues were $1.2 trillion, but net income was constrained by rapidly rising depreciation charges. Net income for 2008 was just under $310 billion.

Spending for proved reserves dropped 30% to $44 billion as merger and acquisition activity collapsed during the last 5 months of 2008, particularly in the US and Canada. Competition for unconventional resources was up sharply, led by US gas shale plays. Global spending for unproved reserves more than doubled from 2007 to $62 billion.

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