US oil spending set to change demand-supply balance
Dubai, June 25, 2013
US oil and gas producers significantly increased exploration, development and acquisition spending in 2012 despite a 58 per cent decline in after-tax profits that was largely driven by low natural gas prices, according to Ernst & Young’s US oil and gas reserves study.
The study analyses US upstream spending and performance data for the largest 50 companies based on 2012 end-of-year oil and gas reserve estimates.
Total capital expenditures for the 50 companies reached $185.6 billion – the most in the study’s history. Largely due to increased tight oil and liquids activity, exploration spending reached $26.3 billion and development spending soared to $103.4 billion, it said.
“The increased exploration and development spend we’re seeing in this year’s study speaks to the incredible opportunity unfolding in tight oil from shale formations and the high cost of developing these unconventional resources,” said Marcela Donadio, Americas Oil & Gas leader for the global Ernst & Young organization. “Everyone wants in and they are paying a premium to play.”
Impact on Middle East
Increasing US production is impacting Middle Eastern players not only by reducing US import needs. It also changes the global supply-demand balance and its impact on oil prices.
“Increased production and reduced cost originated by shale gas has contributed to the rise of new petrochemical production capacity in the US,” said Dr Thorsten Ploss, Mena Oil & Gas leader, Ernst & Young. “New feedstock cost advantaged capacities can reduce exports from the Middle East into the Americas. Middle Eastern producers will have to focus more on alternative markets which potentially yield lower profit margins.”
Total 2012 capital expenditures rose by 20 per cent compared to the prior year. The cost to find and develop new reserves surged to $45.03 per barrel or equivalent (boe) in 2012, reflecting not only the increased spending, but also the substantial downward revisions of natural gas reserves as a result of low natural gas prices.
Oil and gas reserves
Tight oil developments and an increased focus on natural gas liquids contributed to a 45 per cent surge in US oil/liquids reserves over the five-year study period, it said.
Extensions of existing reserves and discoveries of new reserves which have increased every year of the five-year study time period, reached 3.8 billion barrels in 2012. These strong additions helped fuel an oil production replacement rate of 258 per cent in 2012.
“For years, people said the industry would struggle to replace US oil reserves,” Donadio said. “The steady rise in extensions and discoveries as well as oil production replacement rates changes that story.”
Depressed natural gas prices, however, resulted in substantial downward revisions to reserves and drove total gas reserves down 10 per cent from 2011 to 2012. Despite production curtailments throughout much of 2012, gas production increased 4 per cent.
Revenues and profits
Although total US oil and gas production increased 7 per cent in 2012, it could not compensate for the $26.4 billion in property impairments recorded due to low natural gas prices. These impairments, paired with a price-driven 3 per cent decrease in revenues and increases in other costs, contributed to a 58 per cent fall in after-tax profits for study companies. – TradeArabia News Service