Canada's oil and gas industry's efficiency in terms of finding costs and production replacement continues to falter, contends Canadian Oil Patch Analyst Inc. (COPA).
A COPA study based on analysis of 46 companies, including most major Canadian producers, shows the 5 year rolling average finding and development cost for 198589 was more than $9/bbl of oil equivalent (BOE), 4% higher than the previous 5 year average.
Further, the 1989 replacement cost of $8/BOE was higher than in the previous 2 years.
COPA found that highgrading of plays common after the 1986 oil price crash seems to have reached its limits, as seen in declining production replacement rates.
For the first time in 5 years, revisions of reserves in 1989 exceeded discoveries and extensions.
PRODUCTION REPLACEMENT
The 46 Canadian companies added 1.755 billion bbl of liquids reserves during 1985-89, replacing 85% of production but just 46% through discoveries and extensions.
Companies are finding it more difficult to replace oil production with discoveries and extensions, COPA said, in part because of low prices, diversion of funds to debt payments or acquisitions, and lack of elephant scale discoveries.
"As a consequence, the industry and especially the senior sector, has begun to rely more on engineering generated revisions to replace production, similar to the U.S."
The companies' gas reserve additions during 198589 totaled 7.1 tcf, replacing 63% of production.
The low gas replacement figure, however, is due to large reserve writedowns and has little effect on the deliverability surplus because of the relatively long reserve life of Canadian natural gas, COPA said.
In 1989, combined hydrocarbon production replacement on an oil equivalent basis was 79%, but discoveries and extensions accounted for only 36%.
COPA said that major producers benefitted from revisions because it enabled them to greatly reduce the replacement cost gap existing between them and medium sized producers to less than $1/BOE.
Among individual companies, replacement costs were $5-20/BOE.
CONCLUSIONS
The study shows that less than half of the companies surveyed were able to replace their production below the "going concern value" of proven reserves. "This may explain the significant effort and money spent recently by the industry on acquiring reserves vs. finding them," COPA said. The exploratory finding cost also continued to climb, averaging $6/BOE during the 5 year period.
Some of what the COPA study termed the more successful corporate strategies were an aggressive land strategy, a single focus approach, astute gas marketing to enhance the value of reserves, and "courage to do things differently."
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