Oil and gas reserves increased 3% in 2009
The worldwide upstream investment of 224 oil and gas companies decreased 23% to $378 billion in 2009, according to the 2010 Global Upstream Performance Review, released by oil and gas research firm IHS Herold. Although development spending fell nearly 20%, the first decline in a decade, total hydrocarbon reserves increased three percent as both oil and gas reserves grew for the first time since 2005. Production also increased 1%, driven by a 2.2% increase in natural gas output.
“We were very surprised at the strength of reserve additions given the weak economic conditions and tightness in credit markets during 2009,” said Nicholas D. Cacchione, director of IHS Herold and author of the report. “As an industry, we spent fewer dollars, but they went further in terms of purchasing power.”
Oil reserves reversed a two-year decline, rising three percent to 164 billion barrels. The main driver was 8.6 billion barrels in positive reserve additions, but extensions and discoveries in the Canadian oil sands and South and Central America also added a record 7.9 billion barrels. Natural gas reserves climbed 3.7% despite a record 11.4 trillion cubic feet (TCF) in negative reserve revisions, as development of unconventional plays in North America and liquefied natural gas (LNG) resources in Asia accelerated.
The decline in capital spending was led by a 40% reduction by exploration and production (E&P) companies, while the integrated oil companies cut investment by just nine percent. Exploration spending was most resilient, dropping just 12% to $62.7 billion. In contrast, unproved acquisition costs were down 71 percent, and a two percent dip in proved acquisition outlays would have fallen 50% were it not for the $20 billion Suncor/Petro-Canada merger. “With the recession and ongoing uncertainty in the market last year, companies put acreage acquisition on hold and seemed to focus on their in-house development opportunities,” said Cacchione. “This decision, I think, reflected their desires to monetize known holdings that can be brought into production much more rapidly than something with a less certain payout several years down the road.”
Lower capital spending and higher reserves resulted in a near 50% decrease in reserve replacement costs -- to $11.41/barrel of oil equivalent (BOE) -- and lowered finding and development costs to $12.23/BOE. Strong natural gas reserve additions led reserve replacement rates to the highest levels in five years.
The IHS Herold report found dividends rose modestly to another record level, which it noted “is remarkable” given the turmoil in the financial markets and the generally miserable results in the industry’s downstream operations. Dividends exceeded $100 billion, but common share repurchases were 23 percent lower, falling for the first time since 2004. Capital constraints brought about by reduced revenue and rising costs have almost completely eliminated share buybacks as a viable use of funds.
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