One of the main impacts of the pandemic was walking into supermarkets to see vast stretches of bare shelves where, for decades, stacks of toilet paper, nappies, baby formula, cooking oil and even white flour used to magically repopulate overnight. The solution turned out to be relatively simple: get people back to work and fix the problems with delivery networks. (Now our only concern is how expensive everything is!) Rebuilding inventories in the oil and gas industry, on the other hand, is an ever-present, longer-term, more complicated concern that involves a wide range of variables and uncertainties. In today’s RBN blog, we examine the challenges facing exploration and production (E&P) companies in their efforts to more efficiently and profitably replace their oil and gas reserves, and highlight some signs early warning of possible future inventory problems.
We recently looked at the crucial question of oil and gas reserves and what they tell us about the longevity of US production in Say you’ll be there. EIA estimates of “proven” reserves, which are assumed to have at least a 90% chance of eventual recovery under existing economic and operating conditions, imply about 10 years of remaining volumes of crude oil and condensates and 10-17 years of remaining volumes of natural gas in the main producing basins. While these estimates (at least for liquids) may sound worrisome, current estimated hydrocarbon recovery is only 10%-15% in most basins, meaning there is still plenty of resources left in the ground beyond proven reserves. Additionally, it is important to remember that technological advances, such as the implementation of horizontal drilling and hydraulic fracturing, sparked a shale revolution that transformed the US E&P industry, and technology and productivity are likely to continue improving, making much recovery of additional volumes. probable.
With this as a preface to industry-wide concerns, it is useful to drill down beyond the basin level to look at individual E&Ps and their strategies for addressing the issue of reserves and reserve replacement. The level and effectiveness of reserve replacement spending by US E&Ps is key to their profitability and survival and also helps determine the longevity of domestic oil and gas production as a whole. In this blog series, we’ll take a detailed look at the reserve replacement performance of the major public E&P companies we track. We’ll start with a detailed example of how a company’s reserve replacement can be measured using a top-tier E&P: Diamondback Energy.
