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 average finding cost on this (narrower) definition.

If we look at how much oil and gas was added per exploration well drilled, there is a pretty close match in the rankings with Total and ExxonMobil discovering many million more barrels per well drilled than the others.


Filed Under: Oil, Energy, Exploration,

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BP p.l.c. (BP) is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. The Company operates in two business segments: Exploration and Production, and Refining and Marketing. Its Exploration and Production segment is responsible for its activities 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, together with power and natural gas liquids. Its Refining and Marketing segment is responsible for the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services to wholesale and retail customers. In July 2014, Rubis SCA acquired BP Plc's LPG business in Portugal. more »

Share Price (Full)
453.45p
Change
-2.9  -0.6%
P/E (fwd)
9.0
Yield (fwd)
5.5
Mkt Cap (£m)
83,302

Royal Dutch Shell plc (Shell) is an independent oil and gas company, based in the United Kingdom. It operates in three segments: Upstream, Downstream and Corporate. Upstream combines the operating segments Upstream International and Upstream Americas, which are engaged in searching for and recovering crude oil and natural gas, the liquefaction and transportation of gas, the extraction of bitumen from oil sands and converting it into synthetic crude oil, and wind energy. Downstream segment is engaged in manufacturing, distribution and marketing activities for oil products and chemicals, alternative energy (excluding wind), and carbon dioxide (CO2) management. Corporate segment represents the key support functions, such as Shell’s holdings, treasury and self-insurance organization. In January 2014, Royal Dutch Shell plc completed the acquisition of Repsol S.A.'s liquefied natural gas (LNG) portfolio outside North America. In June 2014, Shell sold 19% in Woodside Petroleum Limited. more »

Share Price (LSE)
2358.5p
Change
-1.5  -0.1%
P/E (fwd)
9.9
Yield (fwd)
5.2
Mkt Cap (£m)
149,656

Total SA is a France-based integrated international oil and gas company. It is an integrated international oil and gas company and a chemicals manufacturer. Total engages in all aspects of the petroleum industry, including Upstream operations (oil exploration and production, together with activities related to natural gas), Refining & Chemicals (refining, petrochemicals, speciality chemicals, crude oil trading and shipping) and Marketing & Services (focused on the supply and sale of petroleum products, together with activities related to renewable energy). In April 12, 2013, it inaugurated the partnership with Veolia Environnement SA the Osilub plant. In July 2013, it sold its TIGF (Transport et Infrastructures Gaz France), gas transport and storage business. In September 2013, it announced the transfer to The National Gas Company of Trinidad &Tobago of all of its E&P assets in Trinidad through the sale of Total E&P Trinidad B.V and Elf Exploration Trinidad B.V. more »

Share Price (LSE)
€51.7
Change
1.4  2.8%
P/E (fwd)
10.2
Yield (fwd)
5.2
Mkt Cap (£m)
89,232



  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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