ExxonMobil Announces Industry-Leading Reserve Replacement Additions

Reserves Rally

US supermajor ExxonMobil has announced that additions to its proven reserves in 2010 totalled 3.5 billion boe, replacing 209% of production, the highest level since the merger of Exxon and Mobil back in 1999. The reserve additions were mainly from gas, which totalled 2.6 billion boe, or a 328% replacement ratio. Liquids additions were 905 million boe, equivalent to a 102% replacement ratio. While the reserve additions suggest ExxonMobil's proven reserve and production base is likely to become more gas-focused going forward, the supermajor's total proven reserve base at end-2010 was still relatively balanced, comprising of 47% liquids and 53% gas.

The reserves numbers are the result of acquisitions, revisions of reserve estimates at existing fields, and new exploration ventures, partially driven by ExxonMobil's aggressive capital-expenditure programmes over the past two years. The acquisition of unconventional gas explorer XTO Energy—which closed in June 2010—will have significantly contributed to ExxonMobil's proven reserve levels. Indeed, in December 2009 when ExxonMobil announced its acquisition of XTO Energy, the company's proven oil and gas reserves were 14.83 tcf of gas equivalent according to independent petroleum engineers Miller & Lents. The fact that a large portion of ExxonMobil's additional proven reserves are gas reflects the importance of the XTO acquisition, which added 2.8 billion boe to ExxonMobil's total proven reserve base of 24.8 billion boe. However, excluding the impacts of the XTO Energy acquisition, ExxonMobil's proven reserve-replacement rate is estimated by Barclays Capital to be a much more modest 45%. ExxonMobil's proven reserve additions were also supported by revisions of estimates at existing fields. Indeed, reserve re-appraisals and upgrades on the West Qurna-1 and Zubair oilfields in Iraq might have supported the proven reserve-replacement increase. Prior to 2009, oil sands and equity company reserves were not included in definitions of proven oil and gas reserves by the US Securities Exchange Commission (SEC), which perhaps will make the 2010 figure look more impressive against previous years in the company's SEC filling. However, the results will be consistent with ExxonMobil's own previous reserve calculations, which did include these categories.

However, ExxonMobil's proven reserve additions are partly attributable to its exploration programmes across the globe. ExxonMobil's exploration strategy is wide ranging, targeting unconventional reserves that can sustain plateau production volumes, new exploration plays with large uncertainty but high potential, and further exploration of established hydrocarbon provinces and undeveloped fields for near-term production volumes. In 2010, reserve additions came from the Sakhalin-1 Arkutun Dagi project in Russia, as well as acreage in Nigeria, in Canada, the US, Norway, and in Abu Dhabi.

Outlook and Implications

ExxonMobil's current proven reserve base could sustain production at current levels for approximately 15 years although going forward, the geographically diverse nature of ExxonMobil's portfolio, its ability to execute large-scale projects in a variety of exploration plays in challenging climatic conditions, and its capital-expenditure plan targeting between US$25–30 billion per year over the next five years will aid its reserve-replacement efforts. The revolution under way in unconventional oil and gas looks likely to play an important role in sustaining reserves. ExxonMobil is already moving to establish a global portfolio in the sector , evidenced by its recent acreage acquisition and/or exploration initiatives in Indonesia, Argentina, Germany, and Canada—suggesting that its global acreage could continue growth consistent with the 7% increase between 2005 and 2009.

Nevertheless, going forward ExxonMobil's exploration programme continues to face risks, above ground and below. The costs of exploring for reserves in frontier locations, like the deepwaters of the Sulu Sea near the Philippines or developing oil sand reserves in Canada, are significantly higher than those for conventional onshore acreage, requiring ExxonMobil to maintain heavy spending to sustain reserve-replacement ratios. Its growing dependence on gas reserves in the US might also raise risks, given that large unconventional volumes arriving on the market could keep prices low. ExxonMobil continues to focus on technology as a strategy to extract oil and gas reserves cost-effectively. From the latest generation of 3D and 4D seismic technologies to map reservoirs to remote reservoir resistivity mapping (R3M) to aid exploration in deepwater areas like West Africa and Brazil, ExxonMobil uses all the latest techniques to locate and analyse reservoirs. With significant technological and financial resources, ExxonMobil is well-placed to maintain reserve-replacement additions going forward, although the company will probably encounter increased competition for prospective acreage over the medium term as NOCs—particularly in Asia—grow increasingly competitive.