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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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The Downturn Is Over, But U.S. Oil Companies Face A Huge Problem

Houston

The downturn may be over, but the oil price crash has left behind potentially long-term consequences for the oil industry. In the wake of the oil price rout that started in 2014, companies slashed expenditures, most notably in their exploration and development budgets—and this lack of investment could have severe ramifications for the oil industry.

In 2016, for a second consecutive year, 68 U.S.-listed oil companies indicated in their annual reports that their combined proved liquids reserves dropped, the EIA said in an analysis on Monday.

The 68 U.S.-listed oil companies—obliged to report proved reserves annually to the SEC—had their global crude oil and other liquids production averaging 24 million barrels per day (bpd) last year, which accounted for around 25 percent of the world’s total.

The proved reserves—the ones that companies believe they can extract from known reservoirs under existing economic and operating conditions—dropped by a net 8.2 billion barrels last year, with the decline “heavily concentrated” in several companies that have slashed proved reserves estimates from Canadian oil sands projects.

Apart from downward revisions, other factors contributing to the decline in proved reserves were relatively low extensions and discoveries, and relatively high production, according to the EIA.

Earlier this year, ExxonMobil slashed its proved reserves of crude oil by 3.3 billion barrels in the biggest annual reserve cut in Exxon’s modern history.

“As a result of very low prices during 2016, certain quantities of liquids and natural gas no longer qualified as proved reserves under SEC guidelines,” Exxon said in its statement, adding that these amounts included the entire 3.5 billion barrels of bitumen at Kearl in Alberta, Canada. Another 800 million oil-equivalent barrels in North America did not qualify as proved reserves, mainly due to the acceleration of the projected economic end-of-field life, according to Exxon.

Just before Exxon’s reserves reduction, ConocoPhillips had removed Canadian oil sands reserves from its books. Conoco de-booked 1.15 billion barrels of oil sands, taking the oil company’s reserves to a 15-year low.

According to the EIA analysis, since the start of the oil price crash, companies have been focusing on pumping additional oil from reserves developed in previous years, while slashing exploration and development expenditure.

Although smaller producers have generally started to lift expenditures, the biggest companies—with the biggest reserves across the world—are still reducing exploration and development investments in aggregate.

In the first quarter of 2017, total capex by the 68 U.S.-traded companies was lower than for the same period last year, the EIA said. A total of 45 of the 68 companies pumped less than 250,000 bpd each in the first quarter this year. Out of those 45 firms, 28 increased their capex in Q1 2017 compared with Q1 2016. The 45 companies with production of less than 250,000 bpd saw their combined capital expenditure rise by US$2.6 billion, the EIA said. Related: Which Top 3 Polluter Dominates Wind And Solar?

On the other hand, 17 out of the 22 companies with production of more than 250,000 bpd cut their capex. The 22 larger producers cut their capital expenditures by a combined US$10.8 billion, the EIA analysis shows.

Referring to U.S. proved reserves only, the EIA expects that “the relatively small change in the U.S. reserves component of global total reserves for the 68 companies whose reports were reviewed here suggests that EIA’s 2016 proved reserves report for the United States will show only modest changes from the 2015 report.”

The EIA will issue later this year an annual report focusing exclusively on the proved reserves in the U.S. for 2016, with analysis of all U.S. producers, regardless of whether they are listed or not.

The report with data for 2015 showed that U.S. crude oil and lease condensate proved reserves decreased from 39.9 billion barrels at end-2014 to 35.2 billion barrels at the end of 2015—a decrease of 4.7 billion barrels, or by 11.8 percent. The average oil prices in 2015 dropped by 47 percent compared to 2014, which led to operators deferring or canceling development plans and revising their proved reserves of crude oil and lease condensate downward, the EIA said in its report from December 2016.

This week’s EIA report on U.S.-traded companies shows that oil firms continued to revise down their aggregate proved reserves as oil prices continued to drop in 2016, which signals a potential reserves crunch in the long term as exploration, and development investment by the larger companies is still on a downward trend.

By Tsvetana Paraskova for Oilprice.com

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  • Just another person amazed at the quality of news on June 14 2017 said:
    Why is this a surprise? When comparing refinery run volumes vs previous year and when inventories lag vs gain....this should not be a surprise to anyone...
  • Clyde Boyd on June 14 2017 said:
    The glut is getting bigger. Oil prices going down longterm.
  • Citizen Oil on June 14 2017 said:
    The downturn is over ? Best inform the traders. The oil industry is imploding again . I don't think it'll be a profitable commodity for years to come as everyone is rushing to the same side of the boat. They could drop 2-3% in production and raise prices 40-50% but greed, mistrust ,hatred and stupidity will ensure many people lose their jobs again and entire countries go bankrupt and /or start civil wars. The proven reserves may be lost forever if they continue this ridiculous race to the bottom.
  • hall monitor on June 19 2017 said:
    1. this only applies to public oil companies. a modest chunk is not reported as it is privately held, non-OPEC. And then there is OPEC. They have roughly 80% of reserves. So...lets say 100B bbl from EIA plus 10 B bbl private nonOPEC (guesstimate) plus OPEC = roughly 550 B bbls total global reserves. Plus add roughly 50 B bbls for NGLs (another guestimate) and another 50 B bbls for renewable. = 650 B bbls "reserves" (meaning producible with present tech and at present prices). Global consumption presently roughly 33 B bbls annually. So...at present prices we have reserves for close to 20 years. Even assuming some growth in consumption, we have enough for 15+ years.
    2. Probable resources are substantial. Improvement in exploration and extraction technologies are ongoing. Reasonable to imply expansion of reserves when needed and appropriate at lower cost and quicker than at present.
    3. Improvement in consumption efficiency is also ongoing. Multiple forecasts of impending "peak oil consumption".
    4. Taken together...oil companies are acting rationally. No one wants to be left with stranded assets. Everyone would like to increase the ROI.
    5. Expect to see more articles like this one for the next few years.
    6. reserves dropping...sky does not fall.

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