[rockdoc123]

$this->bbcode_second_pass_quote('', 'H')mmm... to what degree would you guess are O&G reserves estimates malleable when it's time to fill out the tax forms? A little pessimism when the IRS comes calling, and a little more optimism when it's time to bolster share prices?$this->bbcode_second_pass_quote('', '<')/div>

[Zarquon]

Anyway, I'm trying to get an idea of what "failed to replace reserves" means. Here's Shell, 2014:
http://reports.shell.com/annual-report/ ... serves.php

I'll take Shell subsidiaries only:
$this->bbcode_second_pass_quote('', '
')Before taking production into account, Shell subsidiaries added 271 million boe of proved reserves in 2014. This comprised 42 million barrels of oil and natural gas liquids and 229 million boe (1,329 thousand million scf) of natural gas. Of the 271 million boe:
276 million boe were from the net effects of revisions and reclassifications;

[Zarquon]

$this->bbcode_second_pass_quote('rockdoc123', 'I')'ve posted this a number of times but to repeat a publicly traded company has very little leeway to work around reserve declaration to the SEC or OSC (or others) given laws that have been put in place, the very clear directives from a number of participating groups (SEC, AAPG, SEG, CSPG etc) and the fact that companies are required to have their reserves audited by third parties who are legally at risk for what they sign off on.

[vtsnowedin]

$this->bbcode_second_pass_quote('', 'A')fter taking into account production of 925 million boe (of which 30 million boe were consumed in operations), Shell subsidiaries’ proved reserves decreased by 654 million boe in 2014.

[ROCKMAN]

Z - It may seem messy but you appear to have a pretty good handle on the variables and what-if's. And yes: given the huge drop in oil prices many bbls of "proved economically recoverable" oil as doc described have fallen from the count in recent times.

And you'll see a huge gain in their boe for 2016 thanks to their $54 BILLION acquisition of BG

[vtsnowedin]

$this->bbcode_second_pass_quote('ROCKMAN', 'Z') - It may seem messy but you appear to have a pretty good handle on the variables and what-if's. And yes: given the huge drop in oil prices many bbls of "proved economically recoverable" oil as doc described have fallen from the count in recent times.

And you'll see a huge gain in their boe for 2016 thanks to their $54 BILLION acquisition of BG

[ROCKMAN]

vt - I haven't seen the details but probably not as big a bump in production or sales. Much of the asset is Aussi NG that will be exported as LNG for decades. Given how far the price of LNG exports have fallen this deal might not look that great on paper...today. And while that acquisition was definitely part of a long game they do get the immediate publicity value of a big bump up in proved reserves. A metric all public oils just love.

As far as the ration of reserves vs sales it won't be very impressive when looked at in the short term. But given the numbers I've seen it will take looking back after at least 10 to 15 years to see the true value of the acquisition. Big Oil doesn't sweat the quarterly or even yearly bumps in the road: it has to be developing strategic plans decades into the future. Which is why Shell paid $54 BILLION for LNG is the current price depressed market: what benefits they derive in the next few years weren't the driving force behind the purchase.

[vtsnowedin]

$this->bbcode_second_pass_quote('ROCKMAN', 'v')t - I haven't seen the details but probably not as big a bump in production or sales. Much of the asset is Aussi NG that will be exported as LNG for decades. Given how far the price of LNG exports have fallen this deal might not look that great on paper...today. And while that acquisition was definitely part of a long game they do get the immediate publicity value of a big bump up in proved reserves. A metric all public oils just love.

As far as the ration of reserves vs sales it won't be very impressive when looked at in the short term. But given the numbers I've seen it will take looking back after at least 10 to 15 years to see the true value of the acquisition. Big Oil doesn't sweat the quarterly or even yearly bumps in the road: it has to be developing strategic plans decades into the future. Which is why Shell paid $54 BILLION for LNG is the current price depressed market: what benefits they derive in the next few years weren't the driving force behind the purchase.

[ROCKMAN]

From the WSJ last Feb. I didn’t realize Brazil was a significant portion of the deal:

Royal Dutch Shell PLC on Monday completed its roughly $50 billion acquisition of BG Group PLC, giving the Anglo-Dutch oil company a dominant footprint offshore Brazil—one of the most prized oil plays in the world, but one that presents a number of challenges. The prize for Mr. van Beurden is significant. The acquisition of U.K.-based BG will bolster Shell’s already significant position in the fast-growing liquefied-natural-gas market and turn it into the largest foreign oil company in Brazil.
It is a boost Shell sorely needs.

The company’s reserves dropped 20% last year as low oil prices erased 1.4 billion barrels from the volume of oil and gas it expects to develop. The BG acquisition will help damp the impact of that, boosting Shell’s production by roughly 20% and increasing its reserves 25%.

[ROCKMAN]

vt - An update of the Big Picture for RDS:

(Bloomberg) - Royal Dutch Shell Plc is in talks with potential buyers for some North Sea assets, mostly fields it got this year as part of the record acquisition of BG Group Plc, according to people familiar with the matter.

The Anglo-Dutch energy giant has been in talks with companies including privately held chemical producer Ineos Group AG and Neptune Oil & Gas, set up by former Centrica Plc chief Sam Laidlaw, the people said, asking not to be identified as the information is private. Shell is seeking to sell a package of assets and is talking with companies to gauge their interest before a formal sale process is launched, the people said. No final decision has been made and Shell may decide to retain the properties, they said.

Europe’s biggest oil company is planning to raise $30 billion from asset sales in three years after the $54-billion acquisition of BG increased debt and lowered its credit rating. While the move made Shell the world’s second-biggest oil company by market value, it also brought it properties in areas like the North Sea where costs are high. Crude continues to trade below $50, making it difficult for Shell to sell oilfields at what it thinks is a good price.

[vtsnowedin]

Ahh!!! so buy a basket of fruit , sort it out and keep the good cherries while selling the pits.

[ROCKMAN]

Vt – Exactly. That’s how it has always been done especially during a bust. Many properties that once had positive cash flow actually develop negative value. Two weeks ago we responded to a company with a small property to sell. Between lower revenue and a big plug and abandon liability it had negative vale. The guy wanted $1.5 million and we told him we actually wouldn’t even take the property for free if he offered it to us.

So yes: not only liquidate valuable properties to raise but basket some dogs into the deal. If there is some marginal value left it’s still time consuming and generally a pain in the ass to market them separately. So we let the new owner of the basket deal with those problems. Long ago I negotiated a basket sale and made the seller pull out a really big dog otherwise we wouldn’t make a bid…and nor would anyone else. So they did.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'S')o Shell subsidiaries produced 925 million boe in 2014, and they found "191 million boe [...] from extensions and discoveries". I understand that oil from reclassifications, enhanced recovery etc. is real oil when produced, but only the 191 mboe seem to be "new oil".

Unfortunately this part of the report does not differentiate between oil and NG. The table at the bottom does, but it does not say anything about growth.

[Zarquon]

Thanks. For me, it's just my $0.02 that's at stake.

Again from Shell, the number of exploratory wells drilled, 2011-2014:

Productive - Dry Holes
2014: 99 - 109
2013: 199 - 56
2012: 171 - 34
2011: 102 - 112

That's a lot of dry holes there (most of the drilling took place in N. America, which probably means US shales). Would be interesting to know how many of these were offshore/deepwater, where IIRC drilling can set you back a cool million per day and take several months (OK, that was Deepwater Horizon and a production well).

"An increase in exploration activity has contributed to an increase in dry holes, which more than doubled from 2012 to 2013. Accordingly, exploration expenses increased by 70% over the same period, primarily in North and South America."

Further guesswork: exploratory wells are probably a lot cheaper than production wells - no horizontals, no fracking, no completion - but you have to add the cost of seismic exploration ($50,000+ per square mile onshore?). Some googling shows that Shell spent $7 billion on exploration in 1997, that's 10 billion in current dollars. In 2016 they'll spend $33 billion - after several years of budget cuts. That's about the 400-500% increase in exploration costs that I mentioned in my original post and the figure I wanted to understand. So, how does drilling two hundred holes per year, dry/uneconomic or not, add up to an exploration budget of a few dozen billion dollars?

And the dynamic is that they drill a lot more holes, using better but more expensive technology, in smaller and smaller plays, many of them deepwater, and find less than expected?

At the same time, going by the reserve growth of one or two or three years doesn't paint a clear picture because a) it takes years to develop a field, and b) probable/undeveloped reserves are constantly redesignated. Some are downgraded, according to changes in price and markets. Others slowly go upwards through the 3P cycle of "there is some oil, but we don't know how much or whether we're going to drill, so we can't book it yet" all the way to "the field is well mapped, the wells are drilled and lifting costs are always lower than price". Some of it gets lost on the way from 3P to 1P. And therefore next year could look a lot different that this year, but the general trend is down-ish. Is that it?

[AdamB]

$this->bbcode_second_pass_quote('vtsnowedin', 'A')hh!!! so buy a basket of fruit , sort it out and keep the good cherries while selling the pits.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'S')o, how does drilling two hundred holes per year, dry/uneconomic or not, add up to an exploration budget of a few dozen billion dollars?

[Zarquon]

I read recently that the Big Six control only about 15% of world oil production, but about 25% of refining (the numbers were from 2007 IIRC, but shouldn't have changed much since then). Even all the big ones added together are not very significant in terms of market share, but they all bring a hundred years of experience to the table and in terms of technical and management capability they play in a league of their own, the occasional goof notwithstanding.

Now some national oil companies like Aramco certainly enjoy exclusive access to some of the lowest-cost reservoirs in the world and they hire lots of experienced expats for exploration, engineering and reservoir management. On the other hand: what I've read on this site about NOCs like Pemex makes the problems of Big Oil seem like a minor irritation, compared to the job of propping up a whole banana republic with a bloated and inefficient oil company in times of low prices. Or a return to "normal" prices, if you like.

But these are "normal" prices in times of ever-increasing industry costs, too low even for the best-run firms to fully replace their reserves. And even though you can't compare NOCs like Pemex to Statoil, and even though their definition (and reporting) of reserves is generally up to them and not the SEC - would it be correct to assume that your typical NOC is hit even harder than the IOCs by rising E&P costs and subsequent difficulties of developing new reserves?

[ROCKMAN]

Z - Along the lines of what you're thinking: we keep hearing about how much oil the KSA is producing and not very often how much they are exporting. I think you find digging out the details interesting: oil production vs exports; KSA refining capacity; KSA refined product exports vs internal consumption. For instance who exports more refinery products: the KSA or the USA?

Of course as always with the KSA we have to take any number with a grain of salt..

[rockdoc123]

$this->bbcode_second_pass_quote('', 'w')ould it be correct to assume that your typical NOC is hit even harder than the IOCs by rising E&P costs and subsequent difficulties of developing new reserves?