AGA Examines Strong Gas Reserve Growth Last Year

Gas reserves grew substantially in 2000 with a little help from declining production and a big turnaround in drilling, according to a new report by the American Gas Association. The AGA report shows that based on the behavior of 30 large reserve holders examined, total domestic gas reserve additions are expected to be 24 Tcf or greater for 2000. Because only 19.2 Tcf is estimated to have been produced, reserves for 2000 are expected to have grown from 164.7 Tcf to more than 170 Tcf --- the highest level of reserves since 1987, AGA said. Additions to gas reserves exceeded domestic production by at least 26% in 2000.

"This is good news. It indicates that the aggressive drilling response last year is beginning to bear fruit. However, increases in gas reserves must be coupled with increases in the infrastructure to produce, gather, process and deliver gas in order for gas consumers to realize the potential benefits," said Paul Wilkinson, AGA vice president for policy analysis.

According to the AGA study, "Preliminary Findings Concerning 2000 Natural Gas Reserves," at year-end 1998 the largest one-year drop in reserves during the 1990s was recorded as natural gas reserves fell to 164 Tcf due primarily to relatively low wellhead prices and reduced drilling activity. However, with higher prices and increased drilling activity in 1999, the national inventory of natural gas reserves rebounded to 167.4 Tcf once again. The trend in reserve growth for the nation continued in 2000 with proved reserves representing about 14% of the total natural gas resource base (1,258 Tcf) identified by the Potential Gas Committee (Colorado School of Mines).

Growing reserves in 2000 are consistent with the strengthening of supply fundamentals demonstrated during the year, including significant growth in rigs drilling for gas and overall gas completions, AGA said in its analysis. From below 400 rigs operating for gas-directed drilling in June 1999, the count of gas operations grew to over 800 rigs by September 2000 and has remained strong. As gas-directed drilling has increased so have new gas well completions, growing from fewer than 700 in June 1999 to more than 1,400 every month from September 2000 to the present, AGA noted.

In addition to adding reserves, the report shows that large reserves holders in the United States were significant net purchasers of gas in-the-ground during 2000. Over 13 Tcf of gas reserves were acquired by the 30 large reserve holders sampled. "This activity is an indication of continued consolidation within the producer segment of the gas industry and reflects major purchases like BP Amoco of Arco natural gas assets and Anadarko of Union Pacific," AGA added.

Net revisions to existing reserve estimates were strongly positive for the companies in aggregate, amounting to 2.7 Tcf for the 30 large producers. On balance, 18 of the 30 companies reported positive net revisions during 2000. "This is not atypical of behavior when natural gas prices at the wellhead increase significantly one year over another," AGA said. "As gas prices rise, reserves that were not economical to produce at a lower price become economical at the higher price. Thus higher prices tend to lead to upward revisions in reserve estimates."

Domestic gas production from the 30 companies, however, declined to 9.2 Tcf from 9.4 Tcf in 1998 and 1999, AGA reported. The largest gas producer in 2000 was BPAmoco at 1,174 Bcf. Two companies, BPAmoco and ExxonMobil, produced more than 1.1 Tcf during 2000. No one company produced more than 6% of U.S. natural gas production in 2000, AGA noted. Chevron, Shell and Burlington Resources each produced in excess of 500 Bcf during 2000. Sixteen of the 30 companies produced more than 200 Bcf in 2000 compared to 15 companies in the 1999 sample.

An extraordinary increase in wellhead prices developed in 2000 and is reflected in the median price of gas paid to the 30 large reserve holders of $3.67/Mcf. "This is a remarkable 70% increase as the supply of natural gas has struggled to keep up with growing demand," AGA said. "However, indications are that higher commodity prices have translated to increased drilling activity and added deliverability of gas into pipelines for transport to customers, particularly in 2000."

Copies of the report are available in the subscription-only "Stats and Studies" portion of the AGA website at www.aga.org.

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