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Exxon Slashes Proved Oil Reserves By 3.3 Billion Barrels

Oil sands

The world’s largest public oil company, ExxonMobil, has slashed its proved reserves of crude oil by 3.3 billion barrels. The figure represents 19 percent of the total reserves, which are a fundamental metric for the valuation of oil companies. This is the biggest annual reserve cut in Exxon’s modern history, after the merger with Mobil, according to Bloomberg data.

The announcement was not unexpected: Exxon had earlier said it will write off its whole 3.5-billion-barrel holding in the Kearl oil sands project in Canada. The debooking also includes another 800 million barrels of crude in North America that failed to qualify as proved reserves. Some new discoveries at home and abroad, however, partially offset the writeoffs.

The revision was prompted by SEC suspicions about the way in which Exxon calculated the deposits making up its proved reserves.

Exxon’s announcement comes a day after ConocoPhillips revised its proved reserves down by over 1 billion barrels, again in the oil sands.

The category of proved reserves as per SEC’s definition includes oil and gas that can be extracted economically within five years. In this sense, the Kearl writeoff was a long time coming – oil sands as a whole are costlier than other types of hydrocarbons to extract, and the oil price rout aggravated the situation, although many operators in Alberta are successfully working to lower production costs.

Related: As Haftar Moves Closer To Russia, Will Libya Become The Next Syria?

Besides the size of reserves, Exxon also has to deal with uncharacteristically low replacement rates—another important metric. Last year, the company only replaced 65 percent of reserves, down from 67 percent in 2015. This compares with a minimum reserve replacement rate of 100 percent for 22 years running, beginning in 1993.

Nevertheless, Exxon remained in the black, reporting a net profit of US$7.84 billion for 2016. The figure was below analyst estimates and a 51-percent decline on 2015.

By Irina Slav for Oilprice.com

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  • harry on April 29 2017 said:
    Offshore drilling is an absolute necessity for IOCs like Exxon.
  • David on February 23 2017 said:
    Oil Majors had better start drilling offshore ASAP.

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