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 owns an interest in OJSC Oil Company Rosneft (Rosneft), an oil and gas company. The Company's segments include Upstream, Downstream, Rosneft, and Other businesses and corporate. The Upstream segment is engaged in oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing. The Downstream segment has global manufacturing and marketing operations. The Rosneft segment has a resource base of hydrocarbons onshore and offshore. The Other businesses and corporate segment comprises the biofuels and wind businesses, shipping and treasury functions, and corporate activities around the world. 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. more »

LSE Price
466.6p
Change
0.7%
Mkt Cap (£m)
91,553
P/E (fwd)
18.2
Yield (fwd)
6.2

The Royal Dutch Shell plc explores for crude oil and natural gas around the world, both in conventional fields and from sources, such as tight rock, shale and coal formations. The Company's segments include Integrated Gas, Upstream, Downstream and Corporate. The Integrated Gas segment is engaged in the liquefaction and transportation of gas and the conversion of natural gas to liquids to provide fuels and other products, as well as projects with an integrated activity, ranging from producing to commercializing gas. The Upstream segment includes the operations of Upstream, which is engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids, and the marketing and transportation of oil and gas, and Oil Sands, which is engaged in the extraction of bitumen from mined oil sands and conversion into synthetic crude oil. The Downstream segment is engaged in oil products and chemicals manufacturing, and marketing activities. more »

LSE Price
2190p
Change
1.1%
Mkt Cap (£m)
178,914
P/E (fwd)
14.7
Yield (fwd)
6.3

Total S.A. (Total) is an oil and gas company. The Company has three segments: an Upstream segment, including the activities of the exploration and production of hydrocarbons, and the activities of gas and power; a 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 a Marketing & Services segment, including the activities of supply and marketing in the field of petroleum products, as well as the activity of New Energies. Its Corporate segment includes holdings operating and financial activities. The Company operates in the renewable energies and power generation sectors. It is engaged in various sectors of oil and gas industry, including upstream (hydrocarbon exploration, development and production) and downstream (refining, petrochemicals, specialty chemicals, trading and shipping of crude oil and petroleum products and marketing). more »

LSE Price
€45.8
Change
0.1%
Mkt Cap (£m)
100,734
P/E (fwd)
13.1
Yield (fwd)
5.0



  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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