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ALBERTA FINDING, REPLACEMENT COSTS CONTINUE TO SLIP

June 1, 1992

Western Canadian oil and gas finding costs and long term replacement costs in 1990 continued a downward trend that began in the early 1980s. Alberta data compiled by Canadian Energy Research Institute (CERI), Calgary, show the trend is very evident for natural gas. Although not as pronounced, the trend also exists for crude oil. CERI defines replacement costs as exploration and development spending to effect reserves additions. CERI's report examines replacement costs from two perspectives:

Western Canadian oil and gas finding costs and long term replacement costs in 1990 continued a downward trend that began in the early 1980s.

Alberta data compiled by Canadian Energy Research Institute (CERI), Calgary, show the trend is very evident for natural gas. Although not as pronounced, the trend also exists for crude oil.

CERI defines replacement costs as exploration and development spending to effect reserves additions.

CERI's report examines replacement costs from two perspectives:

Short term, calculated using current year exploration and development expenditures with current year reserves additions.
Long term, calculated using the stream of exploration and development expenditures pertaining to reserves discovered in a particular year with the fully appreciated reserves from that discovery year.

Because expenditures are not available for individual hydrocarbons, they are apportioned between crude oil and natural gas by using a measure of exploratory intent.

COST BREAKOUT

Estimates of short term replacement costs for 1990 are $11.40/bbl of oil equivalent (BOE), $13.23/bbl of crude oil, and 82/MMcf-or $9.84/BOE-of marketable natural gas.

CERI's 3 year moving average estimates of long term replacement costs for 1990 are $11.83/BOE, $27.51/bbl of crude oil, and 54/MMcf-or $6.47/BOE-of marketable natural gas.

The corresponding 3 year moving average finding cost estimates, which include only exploration spending, for 1990 are $6.07/BOE, $11.65/bbl of crude oil, and 34155/MMcf-or $4.13/BOE-of marketable natural gas.

CERI said it is hard to pinpoint the causes of the downward trends. But it cited a number of potential factors: growth in reserves additions and improved seismic and geological technology.

Also, CERI said, in 1990 Alberta companies were operating under lean exploration budgets due in large part to uncertainty about future oil prices. So only the most promising prospects were being pursued.

Those factors more than offset other things that would exert upward pressure on costs such as a sharp decline in the number of large oil field discoveries in Alberta.