FINANCIAL TIMES: Conoco stocks ratio hits an industry high: “ConocoPhillips yesterday said its purchase of a stake in Russia's Lukoil had lifted its key replacement ratio for oil and gas reserves to an industry-leading 206 per cent last year.”: “Only a handful of companies have so far reported reserve-replacement ratios of 100 per cent or more, adding as much oil and gas as they produced in the year. However, this largely reflects the impact of ongoing asset sales and a tougher regulatory climate in the wake of the reserves scandal at Royal Dutch/Shell.” (ShellNews.net) 17 Feb 05
By Doug Cameron in Houston
Published: February 17 2005
ConocoPhillips yesterday said its purchase of a stake in Russia's Lukoil had lifted its key replacement ratio for oil and gas reserves to an industry-leading 206 per cent last year.
Conoco is the first of the three US majors to release 2004 reserves data, amid increasing concern about the industry's ability to replenish stocks successfully as they explore ever more hostile environments.
Only a handful of companies have so far reported reserve-replacement ratios of 100 per cent or more, adding as much oil and gas as they produced in the year. However, this largely reflects the impact of ongoing asset sales and a tougher regulatory climate in the wake of the reserves scandal at Royal Dutch/Shell.
Conoco added 1.25bn barrels of oil equivalent last year, with the pro forma addition of its 10 per cent stake in Lukoil contributing 894bn boe. The company said its ratio for 2004 fell to 65 per cent - excluding asset sales and acquisitions and the impact of a write-down on assets in Canada following a slide in year-end bitumen values.
Conoco says the Canadian assets are "an economic project" despite the requirement that they be removed from its calculations because of the fall in the prices at the end of the year.
The requirement from the Securities and Exchange Commission to calculate reserves using year-end oil and gas prices is a source of controversy. Some companies argue that it distorts their true development potential, since projects are generally assessed and executed using internal planning assumption prices.
A growing proportion of reserves are also held in "production-sharing deals" with governments, where companies are paid their share according to the value of barrels of oil. A higher oil price means a lower number of physical barrels owned by the oil company, so the year-end crude price of $40 has led to most companies cutting reserves.
The reserves report from ExxonMobil, the world's largest listed oil company, will be closely watched for its stance on pricing. Exxon has declined to comment on whether it will switch to the year-end model or continue using an internally generated value. The report is due before the end of the month.
BP highlighted the potential for confusion in reserves calculation when it reported a reserves replacement ratio of 89 per cent in 2004, using the SEC rules. This climbed to 110 per cent when it applied UK regulations, which permit the use of a $20 a barrel price for planning purposes.
Cambridge Energy Research Associates, the consultants, is due to publish an industry-commissioned report next week on ways to end the confusion.