Shale Daily / NGI All News Access

Shale Lifts U.S. Reserves Numbers to Five-Year High

U.S. natural gas and oil reserves ended 2010 with the strongest combined annual growth in five years, according to the fourth annual benchmark study by Ernst & Young LLP.

Domestic gas reserves in 2010 jumped 12% to 174.3 Tcf from 156.2 Tcf at the end of 2009. U.S. oil reserves were up 11% from the year before to 17.8 billion bbl.

The 2010 U.S. E&P benchmark study, which was issued on Tuesday, reviewed the 50 largest publicly traded explorers based on end-of-year reserves disclosures filed with the Securities and Exchange Commission (SEC). The companies that were profiled accounted for an estimated 71% of U.S. gas reserves and 93% of domestic oil reserves based on Jan. 1, 2011 reserves estimates. Activity by XTO Energy Inc., which was acquired last year by ExxonMobil Corp., was included in the study.

Big gains last year were in part attributed to a move by producers to secure more U.S. shale oil reserves versus gas reserves. Also helping to lift the numbers was the ability of the U.S. E&P industry to recover from the economic downturn in 2008-2009, higher commodity prices and price stability, the report noted.

"Oil prices generally traded in the $70 to $80/bbl range for most of 2010," said Marcela Donadio, the firm's Americas oil and gas leader. "And while natural gas prices were weak, they were stable in 2010. This created a healthy environment for investing in finding reserves and the technology for producing them. Stability in price -- in spite of an uncertain regulatory environment -- made reserve replacement and growth possible."

Gas production replacement rate from all sources -- extensions and discoveries, improved recovery, revisions, purchases and sales of proved reserves -- was up 252% in 2010 from 2009. The all-sources oil production replacement rate was 234%. More important, said the report, were production replacement rates, excluding purchases and sales, which were up year/year 205% for oil, 249% for gas, and 232% on a combined boe basis.

Extensions and discoveries fell 1% year/year to 27.4 Tcf from 27.8 Tcf. Chesapeake Energy Corp. reportedly had the most significant extensions and discoveries at 4.7 Tcf because of its active drilling program last year.

Positive revisions of 914.9 Bcf were reported in 2010 compared to negative revisions of 8.9 Tcf in 2009. The 12-month average beginning-of-month prices for 2010 were higher than in 2009. Production grew 1% in 2010 to 11.9 Bcf compared with 11.8 Bcf in 2009.

The largest gas production increase last year was by ExxonMobil (491.0 Bcf ), mostly because of its additional unconventional gas volumes from the XTO merger. Southwestern Energy Corp. was in second place with a production increase of 103.9 Bcf, primarily attributable to its Fayetteville Shale play.

ExxonMobil, again because of XTO, was the leading buyer of gas reserves last year (12.8 Tcf), followed by Apache Corp. (951.7 Bcf). Apache last year bought Mariner Energy Inc. and acquired U.S. properties from Devon Energy Corp. and BP plc. CONSOL Energy Inc., with 946.8 Bcf in gas reserves purchases, followed because of its acquisition of Appalachian Basin assets from Dominion Resources Inc.

Sales of gas reserves totaled were 17.3 Tcf in 2010, with the "most significant sales" -- excluding XTO -- reported by Chesapeake, which sold about 1.4 Tcf. Chesapeake has been selling off some of its gas properties to invest in more oily production.

End-of-year gas reserves for 2010 were evenly split between the peer groups -- 32% for the integrateds, 34% for the large independents and 34% for the independents. The leaders in 2010 were ExxonMobil (25,994 Bcf), Chesapeake (15,455 Bcf), BP (13,743 Bcf), ConocoPhillips (10,479 Bcf) and Devon (9,065 Bcf).

Gas production was led last year by ExxonMobil, with output of 1,057 Bcf, followed by Chesapeake (925 Bcf), BP (861 Bcf), Anadarko Petroleum Corp. (829 Bcf) and ConocoPhillips (764 Bcf).

Reflecting the shift to acquire and develop domestic oil properties, proved reserve acquisition costs (PRAC) increased to $10.42/boe in 2010 from $9.81 in 2009. ExxonMobil accounted for more than half (51%) of total PRAC, but its costs were below-average at $8.64/boe to reflect that its purchases were "predominantly gas reserves."

Meanwhile, finding and development costs (FDC) rose to $17.84/boe last year, compared with $13.01 in 2009. Reserve replacement costs (RRC) "saw a smaller absolute increase" to $15.26/boe from $12.78. "Reserve additions used to calculate FDC and RRC increased in 2010 for both oil and gas, but did not keep pace with the increase in costs," the report said.

"On a peer group basis, the 2010 all sources rate for the integrateds (a positive 436%) and large independents (a negative 34%) were heavily affected by ExxonMobil's acquisition of XTO Energy. The independents had a 2010 all sources rate of 408%."

According to the compilation, total capital expenditures more than doubled in 2010, rising from $72.8 billion in 2009 to $177.9 billion in 2010.

"The increase in capital expenditures was primarily driven by proved and unproved property acquisition costs. Proved property acquisition costs were $42.2 billion in 2010 compared to $3.9 billion in 2009. Unproved property acquisition costs rose from $9.6 billion in 2009 to $59.3 billion in 2010."

Exploration costs rose 8% year/year to $15.5 billion from $14.3 billion. Development costs jumped to $60.8 billion -- 36% -- from $44.8 billion in 2009. On a combined basis, the report said the increase in exploration and development spending was primarily driven by ExxonMobil ($5.6 billion increase), Chesapeake ($2.1 billion increase) and EOG Resources Inc. ($2 billion increase).

Only four companies reported decreases in their combined exploration and development spending in 2010 -- BP, ConocoPhillips, Loews Corp. and Plains Exploration & Production Co. Loews, together with XTO, acquired most of Dominion's onshore E&P properties in 2007 (see Daily GPI, June 5, 2007).

The most spending last year was by the integrated producers, which accounted for $83.4 billion (47%) of total spending, said the report. The large independents posted $49.6 billion (28%) in spending, while the independents spent $44.8 billion (25%).

ISSN © 2577-9877 | ISSN © 2158-8023
Comments powered by Disqus