Why Big Oil Didn’t Replace Their Reserves in 2015

TL;DR

The world's major oil companies failed to replace 75% of their reserves last year, causing concerns about future oil supply.

Transcript

Sean O’Reilly: We have to talk about this, because it's a big deal. You'll explain why in a minute. Bottom line, the world's oil companies, particularly the majors, only replaced last year's 75% of their reserves. How long has it been since that happened? Ever? Tyler Crowe: It's been like a decade. I think the last time, there was a post in the Wal... Read More

Key Insights

• 😘 Oil companies, particularly majors, only replaced 75% of their reserves in 2015, the lowest rate in a decade.
• 🛟 Reduced exploration budgets and the difficulty of finding large reserves contribute to this issue.
• 🥺 Companies prioritize cash flow and dividends over spending on exploration, leading to a decrease in reserves.
• 🛢️ Oil companies have built up reserves over the years, but if the trend continues, it could impact future oil supply and prices.

Questions & Answers

Q: Why did the world's major oil companies fail to replace 75% of their reserves?

The companies reduced their exploration budgets to maintain stability and pay dividends. They prioritized cash flow and dividends over spending on exploration.

Q: Is this a long-term trend? Will it reverse itself this year?

This is not a long-term trend, but a one-year issue. Oil companies have built up reserves over the years, and their five-year replacement rates are still above 100%. However, 2016 is also expected to be a challenging year due to reduced spending.

Q: Why are oil companies finding it harder to replace reserves?

It is becoming more difficult to find large reserve replacements. Oil exploration is costly, and the current low oil prices have decreased exploration spending. Discovering new large reserves is a challenge.

Q: What are the consequences if oil companies continue to struggle to replace reserves?

If oil companies fail to replace reserves, it could impact future oil supply and potentially lead to scarcity. This can have significant implications for global energy security and prices.

Summary & Key Takeaways

• Oil companies, especially the majors, only replaced 75% of their reserves last year, the lowest rate in a decade.

• Companies like ExxonMobil and Royal Dutch Shell replaced only around 67-75% of their reserves in 2015.

• Budget cuts in exploration and the difficulty of finding large reserve replacements have contributed to this issue.