I have recently put in a lot of effort into discovering the costs that companies incur in the process of reserve replacement and found that Ernst & Young (EY) complete a Global (or US) Oil and Gas Reserves Study on a roughly annual basis based on the disclosure of information filed with the US Securities and Exchange Commission (SEC)
I have found three studies covering the years 2007 – 2012, which I have discounted due to it being substantially out of date, two for the year 2013 titled 2014 (US and Global) and one for the year 2014 titled 2015 (US only), below is the google link if anyone chooses to look them over as they are reasonably comprehensive reports.
Note that the reports only look at boe figures but occasionally do point out those acquisitions that are more weighted to oil rather than gas;
PRAC = Proved Reserve Acquisition Costs
FDC = Finding & Development Costs
RRC = Reserve Replacement Costs
From the global study for 2013 (titled 2014);
PRAC declined 51% in 2013 to $5.20 per boe, with individual company results for the leading purchasers varying widely. The overall decline in 2013 was driven by Rosneft’s significant acquisition activity as the company accounted for 61% of worldwide proved property acquisition costs. Rosneft’s acquisitions were exclusive to Asia-Pacific and its individual PRAC was $5.39 per boe for 2013. CNOOC’s acquisition costs were concentrated in Canada and Europe and the company had an individual PRAC of $15.04 per boe. Freeport-McMoRan Copper & Gold’s US-based acquisitions resulted in a PRAC of $25.84 per boe.
FDC saw a slight 1% increase from $21.77 per boe in 2012 to $22.00 per boe in 2013. FDC spending increased 9% in 2013 while oil reserve additions declined 18%. A substantial increase in associated gas reserves additions; however, helped keep the costs per boe from increasing further. Gas reserve additions increased due to a flip from downward reserve revisions in 2012 to upward reserve revisions in 2013 that was primarily driven by increased natural gas prices in Canada and the US.
The high acquisition activity and relatively low average PRAC in 2013 helped drive a 31% decline in RRC from $20.69 per boe in 2012 to $14.19 per boe in 2013
From the US study for 2013 (title 2014);
PRAC increased 57% in 2013, rising from $10.76 per boe in 2012 to $16.88 per boe in 2013. Freeport McMoRan Copper & Gold and LINN Energy accounted for approximately 75% of the proved property acquisition costs in 2013 and posted individual PRAC of $25.84 per boe and $13.94 per boe, respectively. Both of these companies’ 2013 purchases were weighted toward oil with oil reserves, accounting for approximately 80% of the total volumes purchased.
FDC decreased from $42.11 per boe in 2012 to $16.61 per boe in 2013, while RRC also declined, dropping from $31.26 per boe in 2012 to $16.64 per boe in 2013. Both measures saw decreased associated costs in 2013 along with strong gas reserve additions as extensions and discoveries increased and downward gas reserve revisions decreased substantially in 2013. Downward natural gas reserve revisions of 28.1 Tcf in 2012 had a significant impact on these metrics in 2012 over the five-year period, growth through acquisitions has been approximately 40% more economical than finding and development additions. PRAC have averaged $11.28 per boe compared to $19.44 per boe for FDC.
From the US study for 2014 (title 2015);
PRAC were $10.63 per boe in 2014, representing a 37% decrease from $16.79 per boe in 2013. Leading purchasers Devon Energy and Encana both made purchases heavily weighted towards oil reserves and posted PRAC of around $20 per boe. Purchases that were heavily weighted towards gas reserves (such as those made by Linn Energy, Southwestern Energy and Ultra Petroleum) saw PRAC in the $3 to $7 per boe range.
FDC increased 13% to $18.89 per boe in 2014 as associated spending was up 14% but combined oil and gas reserve additions increased only 1%. Over the five-year period, RRC have averaged $18.19 per boe, representing the amount the study companies have spent to purchase and develop new reserves. On a peer group basis, over the study period, the integrateds have generally seen substantially higher RRC than the large independents and independents. The significant spikes for all peer groups in 2012 were driven by downward revisions for gas reserves due to depressed natural gas prices.
Am going to let people draw their own conclusions from the above but it is interesting to note that the FDC (E&D global only) slightly increased but the finds decreased with the total cost per boo being marginally over $20 pboo, it would be interesting to see the global figures for 2014 & eventually 2015.
HKP
FAR Price at posting:
8.1¢ Sentiment: Hold Disclosure: Held
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