A review of the 1998 results of 15 major oil firms reveals a decline in production replacement rates and an increase in finding and development costs vs. 1997.
The analysis by Bear, Stearns & Co. Inc., New York, reveals that the group replaced 132% of oil and gas production last year, including revisions (see chart). Although this is a decline from 1997`s 143%, it exceeds the 10-year average of 117%.
Including revisions, finding and development costs from discoveries, extensions, and enhanced recovery for the 15 firms averaged $5.18/boe in 1998, compared with $4.29/boe in 1997 and a 10-year average of $4.39. Including acquisitions, costs were $4.87, an increase of 97¢/bbl over 1997 results.
Despite this decline in performance, said Bear, Stearns, "the performance of some companies is noteworthy. Combining reserve replacement (excluding acquisitions) and finding costs, the top performers in 1998 were Royal Dutch/ Shell Group, Amerada Hess (Corp.), Mobil (Corp.), and Texaco (Inc.). The least-efficient firms during 1998 were PennzEnergy (Co.), USX-Marathon, and Occidental Petroleum (Corp.)."
1998 performance
Including revisions, the 15 majors studied replaced 135% of crude production during 1998 vs. 147% in 1997. Natural gas production replacement rates averaged 126% compared with 135% the previous year. The replacement rate for natural gas was a decrease from the 10-year average of 131%, while that for oil was an increase from the 10-year average of 108%.
When acquisitions are included, however, 1998`s replacement rates exceed 1997`s for both oil and gas. Oil exploration and reserves acquisitions replaced 145% of production last year, while the figure is 134% for gas. These values compare with 126% and 119%, respectively, for 1997.
Large, internationally focused firms fared better last year, in terms of production replacement. "All the internationals fully replaced production," said Bear, Stearns, "whereas only two of the nine (U.S. firms) that we analyzed fully replaced reserves.
"The substantial `outperformance` by the international firms was driven by reserve revisions," the firm noted. "As a group, (U.S.) majors recorded net negative revisions, stemming largely from the sharp decline in oil prices, which made some oil fields uneconomic.
"Ironically, the fall in oil prices resulted in positive revisions for certain international companies-in particular, Chevron (Corp.), Royal Dutch/Shell, and Texaco-as cost-recovery contracts in foreign countries entitled operators to additional volumes of oil."
The U.S.-focused firms analyzed by Bear, Stearns recorded negative net revisions of 13 million boe to reserves last year, while the internationally focused oil companies added a net 3.1 billion boe from revisions.
Finding and development costs from discoveries, extensions, and enhanced recovery for the 15 firms were $8.33/boe in 1998, excluding revisions. These costs were $1.54/boe higher than the 10-year average of $6.79/boe, noted Bear, Stearns, and an increase of $2.08/ boe of the 1997 average.
Outlook
Bear, Stearns`s outlook for 1998 upstream performance calls for improved results.
"We expect costs will decline in 1999, owing to the sharp fall-off in drilling, oil field equipment, and other service costs during the year."
The firm expects the majors, as a group, to totally replace production in 1999.
"In our analysis of company-by-company prospects," said Bear, Stearns, "the majority of the major oil companies appear well-positioned to fully replace reserves in 1999.
Sizable reserve additions are likely to be booked this year, given the approval of several large development projects."
These include the development of: Doba basin field in Chad by Exxon Corp. and Shell; Seno field off East Kalimantan by Mobil and Unocal Corp.; and the Benguela and Belize discoveries off Angola by Chevron.
