The proven oil and gas reserves of major oil companies are depleting at an alarming pace and face the risk of running out in less than 15 years as resource capacity from new discoveries are unable to replace produced volumes, according to a Rystad Energy analysis released on Wednesday.
The group of the world’s largest oil producers referred to as "Big Oil" lost 15% of its stock levels in the ground last year, with remaining reserves set to run out in less than 15 years unless the group makes more commercial discoveries, Rystad said.
The task is becoming more and more challenging as investments in exploration shrink and success rates slump.
The declining proven reserves could create serious challenges for Big Oil, which includes ExxonMobil, BP, Shell, Chevron, Total and Eni, to maintain stable production levels in coming years, the energy consultancy said, warning that this would in turn cause revenue to dwindle and pose a major threat to the financing of the group’s energy transition plans.
Big Oil's proven reserves fell by 13 billion barrels of oil equivalent (boe) in 2020 as a result of major impairment costs, and this year's exploration has not started well, Rystad said.
As high-ranked prospects struggled to produce and active wildcats only yielded modest-sized discoveries, the industry's global first-quarter discovered volumes totaled 1.2 billion boe, the lowest in seven years, it said.
According to the analysis, the fall in crude oil demand and prices as a result of the Covid-19 pandemic, combined with a greater emphasis on capital discipline, has resulted in investment cuts, which may exacerbate the challenge faced by many major operators as they seek to increase their proven reserves.
The selling of oil and gas will continue to dominate business models of European majors, which are increasingly focused on the energy transition, it added.
"The ability of Big Oil to generate future revenues will continue to depend on the volume of oil and gas the companies have at their disposal to sell. If reserves are not high enough to sustain production levels, companies will find it difficult to fund expensive energy transition projects, resulting in a slowdown of their clean energy plans," Parul Chopra, vice president of upstream research at Rystad Energy, was quoted as saying in the analysis.
ExxonMobil’s proven reserves shrank by 7 billion boe in 2020, or 30%, from 2019 levels, the analysis revealed attributing it to reductions in Canadian oil sands and US shale gas properties.
"Also, ExxonMobil’s proven gas reserves dropped last year by 9 trillion cubic feet, mostly in the US. The revisions were primarily linked to the gas assets ExxonMobil bought from XTO in 2009," according to the analysis.
Shell, meanwhile, saw its proven reserves fall by 20% to 9 billion boe last year, Rystad said, adding that gas reserves accounted for two-thirds of the reductions, led by a 600 million boe revision in Australian projects.
Chevron also suffered reserve losses due to impairments, despite the addition of around 2 billion boe of proven reserves to its inventory through the acquisition of Noble Energy.
Similarly, BP saw its total proven reserves drop from 19 billion boe in 2019 to 18 billion boe in 2020, mainly due to the sale of existing assets and a lack of major new discoveries. Total and Eni, however, have managed to avoid reductions in proven reserves over the past decade.
Amid the proven reserve reductions – due to impairments and a lack of new discoveries – companies are seeing a negative impact on their ratio of proven reserves to production, the analysis highlighted.
"When assessing the development of this ratio for the period from 2015 through 2020, ExxonMobil, Chevron and Shell show the highest decline," it said.
The analysis showed ExxonMobil’s proven-reserves-to-production ratio has not fallen below 13 years for the past two decades, but the 15 billion boe of reserves declared in 2020 means its volumes would run out in just over 11 years, compared to the previous expectation that these would last for more than 16 years.
Shell's reserves-to-production ratio, on the other hand, plummeted to 7.4 years in 2020, the lowest among the majors. The company had already stated that its oil production peaked in 2019 and that it expects a 1% to 2% annual decline in output until 2030.
New discovered volumes – a measurement of a company’s exploration performance – illustrates the daunting challenge faced by oil majors to maintain their reserves base and supply existing customers.
Over the past five years, Rystad said the six majors have replaced only 45% of their production through reserves from new discoveries.
ExxonMobil fared better than its peers, adding more than 70% of the produced reserves thanks to 9 billion boe of discovered volumes in the offshore Stabroek Block in Guyana, the energy consultancy said.
"Total also enjoyed significant exploration success last year in the Guyana-Suriname basin, while Eni did well thanks to success in Africa. Chevron and Shell, on the other hand, have struggled to register new discovered volumes. Chevron managed to replace only 15% of its produced volumes from 2016 through 2020, while Shell replaced 27%," Rystad data showed.
By Sibel Morrow