HOUSTON, Aug. 2, 2017 /PRNewswire/ — Despite the low price environment, continued declines in revenues and lower capital expenditures, the 50 largest US exploration and production (E&P) companies demonstrated a commitment toward resource acquisition and development with strong plowback percentages* in 2016 — 158% compared to a five-year average of 132%, according to the US oil and gas reserves study 2017.
The survey analyzes US E&P results based on end-of-year oil and gas reserve disclosures, found that study companies reported capital expenditures of $85.7 billion, which is 27% lower than 2015 and 57% lower than 2014. Similarly, study companies’ revenues amounted to $103 billion — down 21% from 2015 and 53% from 2014.
“Capital expenditures in 2016 were by far the lowest of the five-year study period, and looking back, were comparable to the roughly $75 billion we reported in prior studies for 2009 in the aftermath of the 2008 financial crisis,” said Herb Listen, Assurance Oil & Gas Partner for Ernst & Young LLP in the US. “However, the level of reinvestment by E&P operators – measured in part by the plowback percentage – remained robust. Among peer groups, independents led the charge with the highest plowback percentage, 186%, while large independents and integrateds posted a rate of 149% and 141%, respectively. It’s also important to point out that invested capital is going further in 2016 than even a year or two before, due to efficiency improvements and cost reductions across the sector.”
The drop in capital expenditures among study companies was particularly evident in exploration and development spending which saw cuts of 35% and 52% respectively in 2016. Study companies’ drilling activity demonstrated similar trend lines as the number of exploratory net wells drilled declined 15% and the number of development net wells drilled dropped 51% in 2016 compared with 2015.
Meanwhile, the study companies saw a rebound in acquisition activity from 2015 with both unproved and proved property acquisition costs increasing. Unproved property acquisition costs surged 119% to $23.2 billionand proved property acquisition costs similarly rose 100% to $12.0 billion. In fact, eight of our 50 study companies accounted for total proved and unproved acquisition spending above $2 billion in 2016.
“The deal market certainly warmed up in the second half of 2016 with unproved properties accounting for nearly two-thirds of acquisition spending,” said Mitch Fane, US Oil & Gas Transaction Advisory Services Partner, Ernst & Young LLP. “Transaction volumes increased as a result of companies emerging from bankruptcies and looking to rationalize their portfolios. Likewise, we expect increased transaction volume in 2017 due to a concerted portfolio shift to single basin companies and hi-grading of existing properties.”
Revenues, profits and reserves
Study companies reported net losses of $34.5 billion in 2016, a marked improvement compared to the 2015 net losses of $100.8 billion, which primarily resulted from staggering impairments ($121.0 billion reported among the study companies in 2015). In contrast, study companies reported much lower, though still significant impairments of $20.0 billion in 2016. Offsetting the lower impairments, a 3% decrease for combined oil and gas production along with lower prices caused revenues to decline 21% from $130.3 billion in 2015 to $103.0 billion in 2016. These reductions followed a 41% decline in 2015 compared with 2014.
Meanwhile, oil reserves for the study companies declined a modest 2% in 2016 as extensions and discoveries more than offset production, while substantially lower downward revisions were recorded compared with 2015. Oil reserves were 24.4 billion barrels in 2015 compared with 23.9 billion barrels in 2016. End-of-year gas reserves for the study companies shed a mere 1% in 2016 to 148.0 trillion cubic feet (tcf), compared with a 21% drop in 2015 largely due to significant downward reserve revisions. In 2016, extensions and discoveries were relatively flat at 18.8 tcf compared to 2015 and largely offset production and smaller downward reserve revisions in 2016.
“In the face of lower prices, decreased revenues and profits and a fundamental change in the supply market, US producers remain a potent force in the global picture,” Listen said. “Now that the market has increasingly come to terms with the new normal of low prices, we expect US producers to focus on both optimizing their portfolios — through acreage swaps, sales of noncore assets among struggling producers, and strategic purchases — while also continuing operational improvements to make their capital expenditures even more productive.”