More production, less exploration in a low-price oil market

EIA reports decline in exploration and development leads to lower reserves.

By Oil & Gas Engineering June 1, 2016

The U.S. Energy Information Administration (EIA) is reporting that for the second straight year, low oil prices have forced an emphasis on oil production instead of exploration. It’s a trend that may continue throughout this year.

In its May 25 report, the EIA noted that publicly traded companies added less to their reserves base than in 2014. "This is not necessarily an indication of fewer available resources, but rather that at current prices, there are fewer resources that can be turned into proved reserves, which are underground oil and gas that can be commercially produced at current prices using currently available technology," the EIA said in a press release.

"A combination of reductions in exploration and development (E&D) investment and fewer extensions and discoveries contributed to the decline. Of the companies that submitted first-quarter 2016 financial results, capital expenditures declined 35% from first-quarter 2015, suggesting continued reductions in E&D investment, which could reduce reserves additions in 2016."

The 85 publicly traded companies saw their reserves replacement ratio drop from 100% in 2012 and 2013 to around 75% for 2014 and 2015.

The E&D activity also tends to vary by region and company size, according to the EIA report. "U.S. onshore companies tended to have lower E&D expenditures per reserve addition compared with the other groups, as many reserves additions came from geologically familiar shale basins in the United States," the report stated.

"Other producers typically operate in areas where it is more challenging to find reserves, such as deepwater offshore or in more mature fields that are the foundation of legacy production (such as in China or Russia). The decline in E&D expenditures for national oil companies and international/integrated companies suggests a reduction in exploration activity in such high-cost areas."

Original content can be found at Oil and Gas Engineering.