Oil Sector’s Problem In Replacing Oil Reserves Could Worsen

Chevron Corp.’s (CVX) dramatically low 2007 reserve replacement announced last Friday may be the first in a series of disappointing results reported by major oil companies in the coming weeks.

Chevron announced Friday that it replaced just 10% to 15% of its reserves in 2007, a rate lower than the already pessimistic 50% to 60% analysts estimated. And although Chevron’s report is expected to be the weakest among the oil giants, analysts also expect ConocoPhillips (COP), Exxon Mobil Corp. (XOM), and Royal Dutch Shell PLC (RDSA) to report reserves replacement shy of 100%. BP PLC (BP), which reported 120% reserve replacement on Tuesday, has so far bucked the trend.

Although Wall Street has shown more tolerance towards weak reserve replacement in recent years, in part due to the industry’s strong financial position, some analysts are losing patience with the under-performance. Reserves replacement remains a key benchmark that informs whether a company is replenishing its assets as it produces oil and gas.

“I try to look at the long term, but the biggest problem with Chevron is that it’s the fourth year they are reporting disappointing rates,” said Phil Weiss, equity analyst at Argus Research in New York. “It’s time for them to offer something more tangible. I’m not throwing in the towel yet, but I have some concerns.”

Fortune