Canadian Energy Research Institute (CERI) estimates for 1988 long term oil equivalent finding and replacement costs in Alberta show a sharp 5 year decline.
Gas finding and replacement costs also have declined greatly in the same 5 year span, CERI figures show.
The decreases in Alberta crude oil finding and replacement costs, although not as abrupt as those for gas and oil equivalent, reflect the same downward trend.
ESTIMATES EXPLAINED
CERI's long term replacement cost estimates are calculated by dividing the sum of expenses linked to the exploration and development profile of the reserves found in a given year by the estimate of fully appreciated reserves in that year.
This figure is an estimate of unit costs during the exploration and development stages of the energy cycle for reserves found within that year.
CERI's figures for exploration, or finding, costs consist of outlays for geological and geophysical analysis, exploratory drilling, and lease acquisition. Development costs include spending for development drilling, field equipment, secondary recovery and pressure maintenance, gas processing plant construction, and related activities.
Due to the great variation in annual cost estimates, figures are a 3 year moving average. The average is given for the last year of the cycle, so cost estimates for 1986-88 are used to compute a 1988 moving average cost.
A conversion factor of 11.8 Mcf/bbl is used to convert gas volumes to barrels of oil equivalent.
All of the cost figures are expressed in 1988 Canadian dollars.
OVERALL COSTS DECLINE
Estimated oil equivalent long term finding costs for 1988 are $6.85/bbl of oil equivalent (BOE), from a peak of $14.50/BOE in 1983. Replacement costs plunged to $12.50/BOE in 1988 from $23.80/BOE in 1983.
Estimated crude oil finding costs appear less volatile, estimated at about $8.20/bbl in 1988, compared with $12.70 in 1983. Oil replacement cost in 1988 was about $17.30 vs. $30 five years earlier. Those costs have remained fairly stable the past 3 years.
Gas finding costs fell to 47/Mcf for 1988 from $1.44/Mcf in 1983. Gas replacement costs in the same span tumbled to 70/Mcf from $1.80/Mcf.
The CERI study listed a number of possible reasons for the downward trend in oil equivalent finding and replacement costs. Those factors include strong growth in gas reserves additions, improved seismic and geological techniques, and increased competition in various service fields.
The study points out, however, that a complete analysis of long term replacement costs would require more expense figures during the energy cycle, such as production and operating costs, and more data on revenue from reserves.
In this way, one could compare per unit full cycle cost estimates with per unit revenues to compute the full cycle economics of oil and gas activity.
SHORT TERM COSTS
CERI's figures for 1988 short term replacement costs are $8.94/BOE, $9.16/bbl of oil, and 72/Mcf of gas.
Short term costs, using Alberta figures for 1979-88, compare current year exploration and development expenses with current year reserves additions.
Because exploration expenses are not kept for individual hydrocarbons, they are apportioned between oil and gas by using a measure of exploratory intent.
Reserves additions figures for oil and marketable gas are taken from the Canadian Petroleum Association's estimates of initial established reserves back to discovery year. CERI applied an appreciation factor to reserves figures for discovery years 1984-88 to allow for increases in future reserves values.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.