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Ziff: Lower 48 Replaced 172% of 2005 Production

Record natural gas drilling is growing gas reserve additions in both the United States and Canada, leading to full reserve replacement in both countries, according to Ziff Energy Group.

The Calgary-based consultant said overall gas reserve replacement in the U.S. was 172% of 2005 production, with 119% (10.6 Tcf) replacement by the drillbit. Canada's overall replacement was 122%, with 115% (5.8 Tcf) by the drillbit.

Ziff's reserve replacement rate does not include acquisitions or divestments. Alaskan gas reserves and production also are excluded from reserve replacement and reserve life index calculations. Ziff gathered data from companies representing 48% (8.9 Tcf/year) of U.S. Lower 48 gas production (18.7 Tcf/year) and 81% (5 Tcf/year) of Canadian gas production (6.2 Tcf/year).

Reserve replacement leaders, according to Ziff, were ExxonMobil, 290%, and BP, 223%. The top 30 publicly traded producers for each country were analyzed.

Bill Gwozd, Ziff vice president of gas services, pointed out that revisions had a lot to do with the impressive replacement figures, particularly for major producers. He said that ExxonMobil reported the largest positive revision, more than 1.9 Tcf. When asked by Ziff to explain, Gwozd said the company told the group that 575 Bcf of the revision was based on higher natural gas prices at year-end, which served to add reserves whose production was previously thought to be uneconomic. "They also had 1.4 Tcf of technical revisions, which suggests that in prior years they had missed some gas," Gwozd told NGI.

ExxonMobil and BP combined added 4.5 Tcf of reserves through all means. That figure is nearly one-third of the total reserve additions (15 Tcf) of the top 30 companies examined by Ziff. The top 10 of the group replaced 188% of 2005 production, Gwozd noted. Excluding price-based revisions that figure drops to 175%.

Another metric Ziff looked at is the reserve life index. BP had a reserve life of 12 years, Exxon 15 years. Shell had a reserve life of only six or seven years, noted Gwozd. Generally, the majors are not growing their reserve lives as consistently as some of the independents. For instance, companies such as Anadarko, Chesapeake, EnCana and XTO all had positive replacement levels in 2004 and 2005, said Gwozd. BP had "marginal" replacement in 2004 but improved in 2005.

"Companies' future gas production should grow when gas reserve additions exceed prior year's gas production," said Cameron Gingrich, Ziff lead project analyst. "However, we must recognize that the average reserve-to-production ratio for these U.S. Lower 48 companies is over 12 years. This means that in spite of high natural gas commodity prices, large lead times are required to move last year's gains into the pipeline system for ultimate consumption."

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