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BP Drops Reserve Replacement Ratio

The ratio of oil and gas reserve replacement has become the latest radical change UK supermajor BP has made on its road to a net-zero future.

In its annual report for 2020 released this week, BP said it would no longer use the reserve replacement ratio as one of its key performance indicators because it was no longer a useful measure of its strategic performance.

Like other supermajors, BP has struggled to replace its reserves fully in the last few years. Yet now it is pivoting to renewable energy, and the reserve replacement ratio may have become less relevant to the company as it seeks to turn from an international oil company into an integrated energy company.

“After more than a century defined by oil and gas through two core businesses, upstream and downstream, we set our strategy to become a very different energy company in the next decade,” BP said in the introduction to its annual report for 2020 before going on to list strategic priorities such as scaling up its low-carbon energy business and driving down emissions. The priorities also include focusing the company’s oil and gas portfolio.

Earlier this year, BP said it would reduce its oil and gas production by 40 percent by 2030 while boosting investments in renewable energy by $5 billion a year in the same period—ten times its current level of investment in low-carbon energy.

The company also said it will divest assets worth $25 billion over the next five years, which should help it weather the adverse effects of its core business plans, notably lower oil and gas revenues.

The reserve replacement ratio is the number of new reserves added to an oil company’s portfolio minus the amount of oil it produces. A reserve replacement ratio of 100 percent indicates the company can sustain current production levels.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 23 2021 said:
    This is no more than a cosmetic change aimed at masking the fact that BP like other supermajors has been struggling for the last few years to replace the oil reserves it has been using in its oil production. So it tries to fudge the issue by claiming it would no longer use the reserve replacement ratio as one of its key performance indicators because it was no longer a useful measure of its strategic performance.

    The reserve replacement issue reflects a growing resource nationalism which has been on the rise around the world underpinned by governments wanting to fully control whatever hydrocarbons and mineral resources they have, a growing global demand for these resources and also the ascendency of the National Oil Companies (NOCs) over International Oil companies (IOCs).

    While the IOCs have more experience in the global oil market having been operating for decades in different countries around the world and also the most advanced technology to explore and produce oil and gas, the NOCs have the ultimate advantage of owning the bulk of the world’s remaining proven oil reserves. That is why resource nationalism has become a major threat for the IOCs.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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