The world’s largest oil company by market value reported a 19% decline in its oil and gas reserves last year, the largest in more than a decade. In its 10-K SEC report filed last week ExxonMobil said low oil prices last year meant that some of its assets no longer qualified as proved reserves. SEC regulations stipulate that proved reserves include only those oil and gas fields that can economically produce within the next five years.
Exxon said its reserves were cut from 24.8 billion barrels of oil equivalent at the end of 2015 to 20 billion boe at the end of 2016. It’s the second straight year that the company reported that its reserves have declined. The cut included 3.5 billion barrels heavy oil Kearl oil sands project in Canada. The company said in the filing that the cut was “not expected to affect the operation of the underlying projects or to alter the company’s outlook for future production volumes,” adding that the decision could be reversed entirely or partially if oil prices recover beyond the current mid-$50s/bbl level.
Exxon also defended its decision to take small charges for writing down the assets due to low oil and gas prices, commenting, “management does not believe that lower prices are sustainable if energy is to be delivered with supply security to meet global demand over the long term.”
Consistent with SEC requirements, ExxonMobil reports reserves based on the average of the applicable market price prevailing on the first day of each calendar month during the year. Prices to date in 2017 have been higher than the average first-of-month prices in 2016. Among the factors that would result in these amounts being recognized again as proved reserves at some point in the future are a recovery in average price levels, a further decline in costs, and/ or operating efficiencies.
Exxon first warned of the likely decline last October. In addition to oil sands project, a further 800 million boe of North American oil and gas reserves was revised out of reported reserves, mainly from fields that are anticipated to be shut down sooner than previously scheduled.
Partially offsetting Exxon’s downward reserves revisions were additions of approximately 1 billion boe from new acquisitions and projects in US shale plays (primarily the Permian), Papua New Guinea, Norway and Indonesia. Reserves were also boosted as a result of Chevron’s decision to proceed with the expansion of its Tengiz project in Kazakhstan, where Exxon owns a 25 percent stake.
The supermajor also added more to its resource base, saying it added 2.5 billion boe to take its total resource base to over 91 billion boe. Looking more closely at these additions, ExxonMobil’s exploration success in 2016 included significant oil discoveries in Nigeria and Guyana. Strategic unconventional resource additions were made in the Appalachian Basin in Pennsylvania, the Permian Basin in West Texas and Neuquén Province in Argentina.Overall, the corporation’s resource base totaled more than 91 billion boe at year-end 2016, taking into account field revisions, production and asset sales.
The company emphasized that the “vast majority” of its major assets have lives quantified in decades, “and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses…while near-term prices are subject to wide fluctuations, longer-term price views are more stable and meaningful for purposes of assessing future cash flows.”
Over the past 10 years, ExxonMobil has added proved oil and gas reserves totaling approximately 13 billion boe, including the impact of asset sales, replacing 82 percent of produced volumes. ExxonMobil’s reserves life at current production rates is 13 years. Liquids account for 53 percent of proved reserves.
Exxon’s US upstream operations are located in California, Texas, Wyoming, Arkansas, Louisiana and Alabama. It’s also one of the largest leaseholders in the deepwater Gulf of Mexico with interests in 339 deep water blocks. Its onshore shale operations are conducted through its subsidiary XTO Energy, which according to Exxon’s website is the US’s largest holder of natural gas reserves. XTO owns interests in about 40,000 producing oil and gas wells across the US.
In Arkansas, XTO works across 738,000 acres and helps to produce 370 Mcf/d of natural gas. Its production in Colorado is about 130 Mcf/d. The company works across 685,000 acres in New Mexico helping to produce 9,000 bopd and 130 Mcf/d, while in North Dakota’s Bakken formation, the company helps produce 78,000 bopd and 143 Mcf/d. Texas, the company works across 3.9 million acres (mainly in the Permian), where it helps produce 83,000 bopd and 1.8 MMcf/d.
In terms of shale E&P, Exxon has been providing through its subsidiary in Argentina operational support for development of Argentina’s giant Vaca Muerta shale field, located in the Neuquen, where it has been present since 2010. ExxonMobil Exploration Argentina holds interests in approximately 900,000 net acres in the Vaca Muerta play. It has drilled seven wells so far with its strategic partners in this area.