Technology innovations and improved efficiencies, combined with a better price, gave an assist to the 50 leading U.S. exploration and production (E&P) companies last year to increase revenues and production, while growing their oil and natural gas reserves.

Capital expenditures were also increased for the first time since 2014, according to an annual study by Ernst & Young LLC, doing business as EY, of the largest domestic E&Ps based on 2017 end-of-year reserve estimates. Both oil and natural gas reserves last year hit their highest levels since 2014, when an oil price meltdown forced a retrenchment across the sector.

Of the 50 E&Ps reviewed, 41 reported oil production replacement rates in 2017 exceeded 100%, compared with 29 in 2016.

“Even in the face of adversity and the challenges with pricing, the oil and gas companies in our study group have really focused on being efficient, being economical in having downed costs per barrel, and are focused on expanding their portfolios,” said EY partner Herb Listen, the group’s oil and gas assurances leader for the Americas. “It’s showing in the growth of the reserves,” he said during a conference call.

Oil reserves for the E&Ps studied climbed by 21% overall to around 29 billion bbl in 2017 year/year (y/y). The gains were driven by discoveries and extensions, which increased by nearly three-quarters to around 5 billion bbl. Oil production was up 5% y/y to 2.4 billion bbl. The E&Ps reviewed reported a 1.7 billion net increase in revisions.

Gas reserves for the 50 operators studied rose by 19% y/y to about 176 Tcf, “despite weak Henry Hub prices.” EY noted the monthly gas price averaged below $2/MMBtu in early 2016 but improved later in the year and throughout 2017 to about $3.00/MMBtu.

For the E&Ps participating in the study, gas production declined 7% y/y to 12.5 Tcf. Operators reported 9.9 Tcf net upward revisions, with extensions and discoveries increasing by 63%.

Gas reserves extensions and discoveries rose y/y in spite of stagnant pricing.

“Perhaps there are better economics in other areas versus just in the gas price that are helping to lift up the economic viability of these discoveries,” Listen said. In addition, the E&Ps may be more focused on their top acreage, which overall would have more supply and lower lifting costs.

Because of higher commodity prices, the 50 explorers reviewed saw revenues rise by about one-third from 2016. “As those prices have increased and costs have come down, companies have been able to revise their reserves upward based on those economics,” Listen said.

E&Ps were able to boost their reserves on the higher prices, as they could spend more to develop their leaseholds.

“That is a huge takeaway in the study this year,” Listen said.

Researchers also pointed to better rigs, longer laterals and improved completion techniques in gigging reserves

“One rig can do what three, four or five used to be able to do in 2012, 2013, 2014,” Listen said.

EY’s study is based on information compiled from filings made by publicly traded E&Ps, both integrated and independents, to the U.S. Securities and Exchange Commission.

According to the research, the 50 E&Ps increased their capital spending y/y by about one-third to $114.5 billion. They also drilled about one-third more development wells and close to one-quarter more exploration wells last year.

Meanwhile, impairments fell by almost half to $10.2 billion, the lowest since 2013, as pricing stabilized.

U.S. crude oil production is expected to reach a record high of 10.8 million b/d this year and increase in 2019 to 11.8 million b/d, putting the country on track to becoming the largest global oil producer, EY said.

Natural gas production also is forecast to climb, reaching a record 81.2 Bcf/d in 2018 and 83.8 Bcf/d next year.

“My perspective is that the study companies in this sector have proven time and time again to be innovative and to be resilient in the face of adversity and that’s what companies in this industry had to face over the last several years,” Listen said.

While E&Ps have been able to feast by reducing costs, there may not be much more to squeeze out of the system.

“I do think there is still continued room for improvement and that there will be reserves growth as companies continue to develop and explore,” Listen said. However, “I don’t expect that to come from better economics absent crude oil prices going up. It’s going to be from true drillbit development, continued development and exploration of the resources.”

The existing drilled but uncompleted (DUC) wells inventory should contribute significantly to completions and new production in the coming months, as well as insulate short-term production from some cost pressure as activity ramps up further, according to EY.

The Permian Basin and Eagle Ford Shale accounted for the largest portion of overall DUC inventories, estimated at 59% as of March, “reflecting the overall emphasis on these two plays.”

Based on the well inventory and recent trends, more production from Permian should account for the “major portion” of the U.S. oil production increase this year.

“Incremental production from Permian increased by 282% from the beginning of 2015 to March 2018 and dominated the tight oil production,” said researchers. “This is significantly higher than any other tight oil play…”

However, as many analysts have noted, the Permian surplus has begun impacting how much operators can move out of the basin.

“The sharp increase in Permian production also has impacted labor, rigs, equipment and oilfield services costs,” said researchers. “Even though these may be short-term challenges, the impact on production will likely have immediate impact on crude supply given the significance of the play.”