By OGJ editors
HOUSTON, Sept. 20 -- Oil and gas companies' global upstream spending climbed to $277 billion in 2005, up 31% from 2004, said the latest annual review of upstream performance by John S. Herold Inc. and Harrison Lovegrove & Co. Ltd.
Investment levels set a record for the third consecutive year, yet capital investment still lagged cash flow for a fifth consecutive year.
Cash flow increased 32% to $322 billion. Worldwide revenues rose 37% to $699 billion from the previous year, according to statistics from more than 200 publicly listed companies. This implied an average realization of $37.10/boe during 2005, up 32% from 2004.
Net income jumped 44%, pushing the industry's bottom line to a total $202 billion. Profits from 2005 averaged $11.15/boe compared with a 3-year average of $8.54/boe.
Rising operating costs make it increasingly difficult for oil companies to boost oil reserves and production capacity, analysts said.
Lifting costs gained 35% last year to $201 billion, or an average of $10.69/boe. Finding and development costs increased 26% to $11.26/boe, while pure finding costs jumped 51% to $4.08/boe.
Reserves replacement costs surged 73% to $10.27/boe in 2005, while the reserves replacement rates continued to decline.
"The potential for stormy seas looms," said Herold Chairman and Chief Executive Officer Arthur L. Smith. Volumes of proved and proved developed petroleum liquids held steady for the second consecutive year.
Production, reserves
Oil production increased 1% worldwide in 2005, while gas production rose 2.2%. World oil and gas reserves increased 2%, on the strength of a 3.2% gain in gas reserves.
"The reserve picture is bleaker than the statistics imply," the study said. "For the third straight year, the industry failed to replace its oil reserves through the drill bit. Were it not for the recognition of substantial volumes at two Canadian oil sands projects, crude reserves would have been flat from 2004 to 2005.
"Developed oil reserve volumes dipped modestly—a serious impediment to short-term production growth—and were barely 2.4% greater than at the end of 2002," the study said.
Gas reserves increased by 3.2%, with the US and Asia-Pacific regions contributing more than half of the gain. Field extensions and discoveries exceeded gas production by a 14% margin, analysts said.
US oil and gas reserves grew after stagnating for several years, but production declined 6%. The US was the most profitable region for upstream producers, who reported average earnings of nearly $16/boe.
Canadian oil reserves jumped 30%, supported by growth in oil sands reserves bookings. Acquisition costs in Canada remained the highest in the world. European reserves and production continued to decline as escalating tax rates sapped reinvestment.
"World oil output will continue on its recent path of rather anemic growth, although short-lived production surges may occur as large-scale projects are commissioned," analysts said. "The tight supply-demand balance should provide a firm underpinning for crude oil prices."
New field exploration must receive an increasing share of the capital budget if the world's oil and gas industry is to sustain itself, the Herold study said, noting that many areas remain off limits to most companies.
"While technological advances have kept the cost of finding oil reasonably in check, recent discoveries have been smaller than in prior years, or they have been in hostile environments, which has boosted development costs," analysts said, calling for expanded exploration efforts.
