FINANCIAL TIMES: Exxon likely to buck trend with boost to reserves: “Royal Dutch/Shell, which will report last year's earnings on Thursday, may have replaced just 40-60 per cent of its reserves last year, according to analysts' estimates.” (ShellNews.net) 31 Jan 05
By Doug Cameron in Houston and James Boxell in London
Published: January 31 2005
ExxonMobil, the world's biggest listed energy company, is expected today to report that last year it discovered as much oil and gas as it extracted.
But Exxon and BP are likely to prove exceptions among their industry peers, which are struggling to replace reserves.
The reserve replacement ratio for the biggest energy companies is expected to fall to 75 per cent last year from 100 per cent a year earlier, according to analysts at Sanford Bernstein. The three-year rolling average is at its lowest level in a decade.
Neil Perry, analyst at Morgan Stanley, says record profits from rising prices and high refining margins are "hiding an industry in difficulty - going through one of its most challenging phases in 30 years". Analysts expect Exxon to report record fourth-quarter profits of $6.9bn (£3.7bn).
Royal Dutch/Shell, which will report last year's earnings on Thursday, may have replaced just 40-60 per cent of its reserves last year, according to analysts' estimates. High oil prices are expected to more than double the Anglo-Dutch oil company's fourth quarter net income to about $5bn. But Malcolm Brinded, Shell's head of exploration and production, will be looking to convince investors that its reserves problems are behind it and that it can return to a 100 per cent replacement ratio over the next four years.
On Friday ChevronTexaco, the fifth biggest in the world, said last year's reserve replacement ratio would be low, with most analysts translating this as zero.
Regulatory scrutiny has added to the industry's difficulties over booking finds, as companies are keen to avoid the reserves scandal that engulfed Shell last year.
The industry's growing reliance on production sharing agreements (PSAs) with governments that do not belong to the Organisation for Economic Co-operation and Development is also translating into lower end-of-year reserve figures.
These deals mean companies are paid their share of profits in barrels of oil - a higher price means fewer barrels. Prices have remained high with North Sea Brent crude now about $45 a barrel. The Organisation of the Petroleum Exporting Countries, the producers' cartel, brought no relief when it agreed at a meeting on the weekend to keep production quotas unchanged.
Stefano Cao, head of exploration at Eni, the Italian oil group, says the industry needs to adopt "new metrics" when calculating reserve figures from PSAs, to provide a fairer picture.