According to financial reports analyzed by the US Energy Information Administration (EIA), global spending on oil and natural gas (E&D) exploration and development increased by $ 42 billion (13%) for 102 companies listed oil companies in 2019, for a total of $ 361 billion. Due to the significant declines in crude oil prices in 2020, however, global proven reserves will likely be revised downwards, and E&D spending will likely decline as well. Several companies have already announced significant budget cuts.
EIA based its analysis and recent 2019 publication Financial analysis primarily on published financial reports of 102 publicly traded companies, so the findings do not necessarily represent the industry as a whole as the analysis does not include private companies that do not publish financial reports.
According to their financial statements, these 102 companies produced 22.2 billion barrels of oil equivalent (BOE), a measure that reflects their combined production of crude oil and natural gas, and spent $ 361 billion on E&D. Dividing the E&D expenses of these companies by their combined production volumes yields a ratio of $ 16 / boe in 2019, or about a quarter of the average Brent crude oil price of $ 64 / bbl (b).
In May Short-term energy outlook, The EIA predicts that Brent crude oil prices will average $ 34 / bbl in 2020. If this crude oil price forecast materializes, E&D spending by BOE could fall to less than $ 10 / BOE in 2020 if E&D spending remains at around a quarter of the Brent crude oil price.
Source: US Energy Information Administration, based on Intercontinental Exchange, Bloomberg, LP
Proven reserves are estimated quantities of petroleum and natural gas which analysis of geological and technical data demonstrates with reasonable certainty that they are recoverable under existing economic and operating conditions. Since crude oil prices directly affect the profitability of E&D projects, changes in the prices that companies use to develop their reserves calculations can significantly affect their levels of proved reserves and the volume of reserves they can claim. as additions.
The United States Securities and Exchange Commission requires publicly traded companies in the United States to assess proved reserves at the end of a year based on average crude oil prices from the first trading day of each month during this year. On the first trading day of the first six months of 2020, the closing price of the first month’s Brent futures was on average $ 44 / bbl, 30% lower than the 2019 average of 63. $ / b.
When crude oil prices decline, oil companies may take depreciation charges for assets that decline in value to a level below the cost of their development. Depreciation charges represent the decrease in the value of assets held by a company, generally the amount of its proved reserves. The current low price environment suggests that the 102 companies analyzed by the EIA are likely to post large negative revisions to their proved reserves in 2020.
Main contributor: Jeff Barron