Oil and Gas Finding Costs Still Soaring For the Majors

Thursday, Apr 12 2012 by
3
Oil and Gas Finding Costs Still Soaring For the Majors

Oil and gas finding costs are on the rise again as inflationary pressures return to the industry and as Major companies struggle to improve their exploration performance in terms of reserves found per well drilled. That’s the picture that emerges from the latest company data from Evaluate Energy. In this report we focus just on the leading Major companies – BP, Chevron, Conoco, ExxonMobil, Petrobras, Shell and Total. We’re defining finding costs as exploration costs (as reported by the companies in their FAS69 submissions to the US SEC) divided by extensions and discoveries and revisions to Proved Reserves. Revisions often result from changes to reserves that may have been booked in the past but as they reflect better knowledge of reserve size and reservoir conditions, it makes sense to include them in this calculation.   Latest Trends for 2011
Evaluate data shows finding costs rising again in 2011 and sharply higher than a decade ago.



It would appear that the continued upward trend has been due both to rising operating costs (Evaluate data shows the average cost of producing a barrel of oil equivalent)   as shown in the graph below….



…..and to a rather lacklustre performance in terms of reserves added via exploration drilling:  the graph below shows the trend in reserves added via exploration and indicates that companies performed no better in 2011 on this measure than in 2010.

Ranking the Companies
There are significant fluctuations in company costs and reserve additions from year to year so we have taken a 10 year average to try to smooth out the data.

The graph shows Total delivering the lowest 10 year average finding costs of any of the Majors, followed closely by ExxonMobil and Petrobras. BP turns in the highest cost in the group at just under $5/bbl oil equivalent. This is partly because BP had some pretty big negative revisions to reserves in the last 2 years that caused its ranking to hit rock bottom.  If you ignore revisions and just look at the cost or finding proved reserves via discoveries alone, then BP actually comes out on top with the lowest 10 year…

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BP p.l.c. is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. The Company operates through three segments: Upstream, Downstream and Rosneft. Its Upstream segment is engaged in oil and natural gas exploration, field development and production; midstream transportation, storage and processing, and the marketing and trading of natural gas, including liquefied natural gas (LNG), together with power and natural gas liquids (NGLs). Its Downstream segment is engaged in refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services to wholesale and retail customers. Rosneft is an oil company, which has a resource base of hydrocarbons onshore and offshore. more »

LSE Price
436.9p
Change
 
Mkt Cap (£m)
82,642
P/E (fwd)
16.4
Yield (fwd)
6.9

Royal Dutch Shell plc (Shell) is an independent oil and gas company. The Company explores for crude oil and natural gas across the world, both in conventional fields and from sources, such as tight rock, shale and coal formations. The Company is engaged in the principal aspects of the oil and gas industry in approximately 70 countries. The Company operates in three segments: Upstream, Downstream and Corporate. The Company's Upstream segment focuses on exploration for new crude oil and natural gas reserves and on developing new projects. Its Downstream segment focuses on turning crude oil into a range of refined products, which are moved and marketed around the world for domestic, industrial and transport use. The Company sells various products, which include gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas (LNG) for transport, lubricants, bitumen and sulfur. It also produces and sells ethanol from sugar cane in Brazil. more »

LSE Price
1865p
Change
 
Mkt Cap (£m)
148,452
P/E (fwd)
13.7
Yield (fwd)
7.6

Total SA (Total) is an oil and gas company. It has three segments: the Upstream segment, including the activities of the exploration and production of hydrocarbons, and the activities of gas; the Refining & Chemicals segment constituting an industrial hub consisting of the activities of refining, petrochemicals and specialty chemicals, and also includes the activities of oil trading and shipping, and the Marketing & Services segment, including the activities of supply and marketing in the field of petroleum products, as well as the activity of New Energies. The Marketing & Services segment is engaged in the development of its oil products distribution activities and related services around the world. The Corporate segment includes holdings operating and financial activities. It has exploration and production activities in over 50 countries, and produces oil or gas in around 30 countries. It operates in the renewable energies and power generation sectors. It operates through Saft group. more »

LSE Price
€43.4
Change
 
Mkt Cap (£m)
87,123
P/E (fwd)
11.8
Yield (fwd)
5.4



  Is BP fundamentally strong or weak? Find out More »


1 Comment on this Article show/hide all

marben100 13th Apr '12 1 of 1
3

Good article, but there are other vital cost metrics that investors must consider (and which impact the supply side of the overall supply/demand equation):

  • Development & decommissioning CAPEX per boepd of production
  • Tax take/royalties imposed on producers by host governments

 

It would be very interesting to see similar company comparisons of these factors. They could alter the view of who is spending their investors' dollars most wisely. I.E. finding costs for a field could be lower but if subsequent development costs are higher and/or tax take is higher, it's not such a simple equation. E.G. it might be easier/cheaper per bbl to find large numbers of barrels in a deepwater sub-salt reservoir than in a small onshore one, but development costs for the former will be vastly higher.

Regards,

Mark

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About EvaluateEnergy

EvaluateEnergy

Evaluate Energy is a provider of up to date and accurate oil and gas analysis for industry professionals. 



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