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Page added on November 12, 2016
Oil Majors See Reserves Evaporate: Write Downs Continue
In its third-quarter report, Exxon warned it might have to write off 4.6 million barrels of oil and oil equivalent from its proved reserves if international prices remain at the current level into the end of the year. The company explained that at these prices, the reserves were uneconomical to tap, and therefore fail to meet the Securities and Exchange Commission’s definition of proved reserves.
Most of these assets that are no longer in play are in Canada in the Alberta oil sands, and about a billion barrels of oil equivalent are in the U.S.
Exxon’s warning suggests that the new normal for oil prices continues to take its toll on the industry despite the hype about lower-than-ever production costs in the shale patch and the supermajors started refocusing on smaller, quicker-return projects.
All shale is not equal, however, and in some places, the breakeven is higher than current market prices. This is also true for conventional oil extraction in parts of the oil sands, if we are to trust Exxon. And there is no reason why we shouldn’t, when it comes to matters of reserve de-booking.
According to the Motley Fool, things are not much different for Canadian oil companies. Even though they are not yet de-booking reserves, they might start doing it soon, as they approach the end of their current development phases. If prices remain low, which is very likely unless OPEC hammers out a production cut agreement, a lot of these projects may become economically unviable.
The good news is that the de-booking does not need to be permanent. The oil and gas will still be there when prices start improving. If they don’t, there won’t be any point in developing these higher-cost reserves.
Things are different with reserve replacement ratios, however. These are essential for the valuation of oil companies: the ratio serves to inform investors and traders about the future production of a company.
Last year, Big Oil saw the worst year of new discoveries since 1952, with the combined reserve replacement ratio of the supermajors falling below 100 percent, which is the minimum required to maintain current levels of production. At the time, Morgan Stanley warned that even if oil demand falls to 86 million bpd, from the current 90-plus million bpd, E&Ps would need new fields to satisfy it.
So, forget about de-booking reserves, which can be re-booked at the first sign of price improvement. Reserve replacement is the bigger problem; its solution depends on a more sustainable oil price improvement, and that’s nowhere in sight for now.
15 Comments on "Oil Majors See Reserves Evaporate: Write Downs Continue"
Dredd on Sun, 13th Nov 2016 12:19 am
OIl miners drown in the glut.
joe on Sun, 13th Nov 2016 3:43 am
Tax breaks and deregulation will lower cost of production. That should offset rates hikes. The coming recessionary pressures might be too much even for lowering corporate tax and returning jobs to turn around, this is a generational policy with long term effects a future FED rate hike decision will add to the cost of tight oil investments. Overall the coming reforms will not turn around the trend that too many people and not enough resources are in the world. The reality is that the multipolar world predicted by many is emerging from the failed Iraq invasion and defeat in the war on terror.
Oil companies might want to keep as much oil as it can on the books as global economic weakening is going to continue especially if Trump throws globalisation into reverse that said there is a huge oppertunity for Trump to offset losses in tight oil with tax breaks for successful green investments, but will he see that oppertunity, I dont know, the chance to take toxic sludge off the books and replace it with wind paid for by Uncle Sam should be taken (lots of jobs created), such a move would help appease greens and combine efforts in energy companies instead of defining each company by source of energy. So much is yet to be revealed.
yoshua on Sun, 13th Nov 2016 7:42 am
The low oil price has forced the shale oil producers to concentrate on only the sweet spots which are now being depleted as fast as possible. What will be left is the really uneconomic shale oil. Will anyone even bother to drill those prospects later on?
Boat on Sun, 13th Nov 2016 8:27 am
Yoshua
Google proved oil reserves by price. For only $19.99 I will sell you my video “Google My Way”
Boat on Sun, 13th Nov 2016 8:49 am
If Trump opens up federal lands there may be reserves that will work at low prices. Only time will tell.
Apneaman on Sun, 13th Nov 2016 9:36 am
boat, Obama just did that 6 weeks ago.
Obama Admin Quietly Enables Oil and Gas Drilling on Public Lands and Waters, Weakens Endangered Species Act
http://www.desmogblog.com/2016/09/29/obama-admin-oil-gas-public-lands-waters-endangered-species-act
You would think conservatards would hero worship him for it. It’s what they want right? He gave them what they want. Obama – conservatives sugar daddy.
I guess none of them want to discuss it since it means going off script.
Apneaman on Sun, 13th Nov 2016 10:04 am
Boater, I think I finally figured out why you love all the technology so much.
Lonely men are increasingly ‘talking dirty’ to virtual assistants like Siri and Cortana
Teenagers and men seeking company are reputedly turning to virtual assistants for sexually explicit chats.
http://www.ibtimes.co.uk/lonely-men-are-increasingly-talking-dirty-virtual-assistants-like-siri-cortana-1588620
I’m betting that any day now young millennial social justice warriors will be getting offended on behalf of the oppressed female virtual assistants.
Time to start an online petition at change.org and fire up the Twitt machine.
#End female virtual assistants exploitation
#Female virtual assistants lives matter
#Equal pay for female virtual assistants
#Do it fer da children
rockman on Sun, 13th Nov 2016 10:39 am
Hmm…companies don’t have much access to federal mineral leases?
Fossil fuel production on federal lands accounts for 25 percent of total U.S. fossil fuel production. Coal production on federal lands, alone, accounts for 40 percent of the U.S. total. In fact much more coal was produced from federal leases during President Obama’s 8 years in office then during President Bush’s 8 years. Likewise much more US coal has been exported. And thanks to President Obama instructing his departments to expedite permits to expand Texas coal export terminals the state, for the VERY FIRST TIME is exporting western coal. Meeting local resistance the President Obama’s plan for 3 west coast coal export terminals production from those leases is now hauled by train to Texas. And while the folks in CA have stymied President Obama’s effort to ship coal from its shores he approved shipping it to export terminals in Canada.
And from 2009 thru 2015 (during President Obama’s time in office) according to the govt’s BLM more than 24 MILLION ACRES OF FEDERAL ONSHORE LEASES were offered to the industry. Of that number only 25% received bids from the industry. Of the federal offshore leases more then 100 MILLION ACRES have been offered to the industrty during President Obama’s terms with only a small fraction leased. The last Gulf of Mexico lease sale in March is typical: of the 8,340 leases offered for sale bids on only 148 leases were received. That has been the typical lack of interest by industry even before the oil price collapse. And as impressive as fossil fuel production is from govt leases might be today it will diminish in future decades just as industry interest in those leases continue to decline: most of the good sh*t is gone.
President-elect Trump may change much in the country. But he ain’t gonna change the geology. LOL.
mx on Sun, 13th Nov 2016 11:06 am
Russian production increasing, and profitable at $10 a barrel because of vast Russian currency devaluation.
Trump can make us great again by destroying the American Dollar. That will lower US production cost vs. the world, but you’ll never be able to afford a plane ticket out of the country, or any product from Japan or Europe. Bye Bye BMW.
yoshua on Sun, 13th Nov 2016 3:07 pm
Boat if you raise the price to $39,99 you will have doubled your proven fan club.
shortonoil on Sun, 13th Nov 2016 4:45 pm
Russian production increasing, and profitable at $10 a barrel because of vast Russian currency devaluation. “
Sit down and calculate what it cost to lift a barrel (302 lbs) of oil 4000 feet with a 50% water cut (the world average) and then come back and tells us that Russia can produce oil for $10 a barrel.
Did WalMart give them one heck of a deal on high head pumps, and was their electricity a gift from the Martians? Hint: that is 6.42 million ft*lbf, or 22.8 Kwhrs. Who ever came up with that $10/ barrel figure must have been a complete idiot.
Northwest Resident on Sun, 13th Nov 2016 6:54 pm
“Who ever came up with that $10/ barrel figure must have been a complete idiot.”
Or a devious mastermind hell bent on keeping highly targeted investors believing in the fairy tale, all the better to make a few more bucks off the suckers before the whole shit show crashes and burns.
makati1 on Sun, 13th Nov 2016 7:30 pm
Did anyone here consider that Russian LABOR, therefore material costs of all kinds, is much LOWER than in the Plundering States of America? There are more “facts” to consider than by comparing their costs to that of the U$ using U$ standards and costs.
A mason in the U$ makes $25+/hr, plus bennies. A Ps mason makes $3/hr and few, if any, bennies. I can build a house here for 1/2 the cost in the U$. Why cannot Russia produce oil for $10? Labor factors into EVERY cost from ore mines to the gas pump. Just askin’.
rockman on Mon, 14th Nov 2016 4:24 pm
“Sit down and calculate what it cost to lift a barrel (302 lbs) of oil 4000 feet with a 50% water cut (the world average) and then come back and tells us that Russia can produce oil for $10 a barrel.” Not sure what it cost to lift oil in Russia but I’m lifting 150 bopd from 4,600′ with an 85% water cut in Victoria County, Texas. Counting the rental on the jet pump (quit using pump jacks long ago), hauling the water to a disposal well (about to get much cheaper when I finish the SWD well on the lease), electricity and my guager (I wonder what they get paid in Russia) it’s running about $16,000/month.
150 bopd X 30 days = 4,500 bbls/MTV
$16,000 / 4,500 bbls = $3.56/bbl.
And given how they do things in Russia they probably aren’t spending anything of salt water disposal: just dumping it into the creeks.
I’ve given long detailed info about production cost before and won’t bother again. But in general a cost of $10/bbl is VERY HIGH. IOW not f*cking cheap. LOL. Especially for the big fields. It’s much more expensive to produce oil in the DW GOM then onshore Russia. But consider a field out there producing 100,000 bopd. Certainly not one of the biggest. That’s 36,500,000 bbls per year. At $10/bbl that would be $365 MILLION PER YEAR to produce. Who thinks that’s happening out there today? But for sake of argument let’s pretend that rediculous number is true. Less royalty the company would be selling 31,900,000 bbls/yr.
31,900,000 X $40/bbl = $1,276,000,000 gross.
$1,276,000,000 – $365,000,000 = $911,000,000
So a simple question: how many here would shed a tear for a company netting $900 million per year that’s spending $10/bbl lifting cost? How about an even more ridiculous lifting cost…$30/bbl. So that cost $1,095,000,000 per year. So the company ONLY NETS $181 MILLION. So, are you drowning in your own tears now? LMFAO.
Some of you folks see numbers on the net and accept them without giving it a second thought. Y’all might want to give a second thought to doing that. LOL.
rockman on Mon, 14th Nov 2016 4:44 pm
Oh, I forgot to mention my La oil well FLOWING 220 bopd with a 15% water cut. And I have a disposal well so no hauling. Essentially the only expense is just electricity for the SWD and the guager. So:
220 bopd X 365 = 80,300 bbls per years gross
60,200 bbls net of royalty = $2.4 million/yr
$4,800/month LOE = $56,700/yr
Lifting cost = $1.06/bbl
Yes: the Rockman could sell that oil for $3/bbl and still be commercially producing a positive cash flow.