Majors’ Reserves Vulnerable to Low Prices, FID Freeze

摘要

The majors’ reserve replacement performance had been patchy even before oil prices began falling in mid-2014, but is threatening to deteriorate sharply as a result of the industry’s virtual freeze on final investment decisions (FIDs) for new megaprojects. Reserves replacement is considered a key indicator of oil companies’ long-term upstream health, and to replace their reserves, the majors depend on the huge volumes that can be booked from megaprojects in the deepwater, LNG and oil sands. But under US Securities & Exchange Commission (SEC) rules, booking these proved reserves depends on FID being taken-and with low prices rendering many of these megaprojects uneconomic, few of these FID “triggers” are being pulled. Royal Dutch Shell set the tone earlier this month when it announced a negative reserve replacement ratio of minus 20% for 2015, reflecting a lack of new FIDs and also the scrapping of its Carmon Creek oil-sands project, which led to the debooking of some 418 million barrels of oil equivalent. Between 2011 and 2014, when oil prices were around $100, majors like Shell, Exxon Mobil, Chevron and Total each generally took FIDs on five to 10 projects a year-BP was less active due to post-Macondo financial constraints-while hiking capital spending to record highs. But the price collapse has prompted Big Oil to defer dozens of megaprojects, with only a handful sanctioned last year, and few, if any, expected in 2016 in the wake of steep spending cuts (PIW Jan.18’16). In order to book proven reserves, SEC rules state a company must take FID and have “reasonable certainty” that they will be recoverable with available technology under existing economic and political conditions.