Report: Independents replaced 256% of production in 1999

Independent oil and gas companies replaced a robust 256% of production in 1999�the highest reserve replacement figure recorded in the past 5 years�compared to 113% by major oil companies, says Salomon Smith Barney Inc. in a new report.


Independent oil and gas companies replaced a robust 256% of production in 1999�the highest reserve replacement figure recorded in the past 5 years�compared to 113% by major oil companies, says Salomon Smith Barney Inc. in a new report.

Analysts Robert Morris and Michael Schmitz say acquisitions represented 115% of the independent group's reserve replacement results; successful drilling, 113%; and reserve revisions, 27%.

Major oil and gas companies replaced only 113% of production last year, well below their 5-year average of 143%, the analysts say. Acquisitions represented 14% of the majors' replacements; drilling, 58%; and reserve revisions, 41%.

Supporting the bullish US investment outlook for natural gas, the study found both independents and majors replaced just 91%�80% excluding revisions�of US natural gas production in 1999. For the past 5 years, drilling plus revisions for this group have replaced 90% of US natural gas production�88% excluding reserve revisions.

Independents in the study replaced 105% of production, excluding revisions, while the majors replaced 79%, excluding revisions of natural gas production in 1999. Analysts Morris and Schmitz say it appears the majors seem less focused or possess less opportunity to expand US gas production than independents.

They suggest the reason for this is that the major oil and gas companies "place more emphasis on discovering or developing relatively larger reserve pools outside the already heavily explored domestic [US] arena."

The independents' finding costs also improved in 1999. The aggregate fully loaded findings costs for the study group of 60 independent companies fell 33% to $5.32/boe, compared with $7.94/boe in 1998 and a 5-year average of $5.64/boe. Salomon Smith Barney says the biggest factor underlying the decrease was the significant upward revisions to crude oil reserves due to crude oil price increases at yearend.

Costs associated with acquiring reserves in 1999 were substantially below that posted by the drillbit, the analysts say, even when taking into account upward reserve revisions. Acquisition costs averaged $4.17/boe in 1999, or 33% below exploration and development costs.

Meanwhile, Salomon Smith Barney says, finding costs�excluding reserve revisions�among its group of 11 integrated oil and gas companies jumped 13% in 1999. Taking revisions into account, however, 1999 exploration and development costs for the majors averaged $5.57/boe, compared with $6.27/boe for the independents. The major oil companies' acquisition costs averaged $2/boe in 1999.

Capital expenditures among the independents declined 24% in 1999, according to Salomon Smith Barney. Exploration and development spending was down 31%, reflecting, in part, a lack of "drill-ready" projects and a lack of experienced personnel, the analysts say.

Total exploration and production spending by the majors also fell in 1999. Salomon Smith Barney says it dropped 36% from the previous year, while exploration and development fell 27%.

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