Study Finds BP Leads in Reserves Replacement, F&D Costs, E&P Returns
For the fourth year in a row, London-based BP plc topped the rankings for the leading oil and natural gas companies and also was a leader in reserves replacement, according to a study by Prudential Equity Group. Prudential studied eight majors' year-end reports between 1999 and 2003, analyzing production income, earnings quality, reserve replacement ratios, finding and development costs, future net cash flow and the return on exploration and production (E&P) activities.
In the five-year period studied, BP, ExxonMobil Corp., Total, ConocoPhillips, ChevronTexaco, Marathon Oil Corp., Royal Dutch/Shell Group and Amerada Hess replaced 134% of their production at an average cost of $5.18/boe. Excluding acquisitions and net of asset sales, the replacement ratio was 115%, according to Michael Mayer, the Prudential analyst in charge of the study.
BP placed first in terms of production replacement ratios, finding and development costs and returns from exploration and production. ExxonMobil, headquartered in Irving, TX, placed first in production income and quality of earnings. ExxonMobil, said Mayer, showed ""consistently above-average performance and clean operating results."
Overall, Paris-based Total led the group with a replacement average of 162%, followed by BP and ConocoPhillips. Houston-based Marathon was in last place among the eight, with a replacement average of 39%. On average, the E&Ps studied earned $5.82/boe and generated cash flow from E&P activities of $10.02/boe. In total, they spent $242 billion over the five-year period to find, develop and acquire oil and natural gas.
Marathon finished in sixth place overall, while Shell was seventh and Hess was eighth. Hess also declined 41% in production income between 2000 and 2003.
"The below-average performance of these companies is primarily due to their very high finding and development costs and poor reserve replacement records and, in the case of Amerada Hess and Marathon, their above-average charges against earnings for so-called nonrecurring or special items," Mayer wrote in his report.
Between 2000 to 2003, worldwide finding and development costs for the group rose 30% on average to $5.77/boe. Over the three-year period, BP's costs averaged $4.37/boe, while last place Hess' costs averaged $13.07/boe.
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