The major international oil companies have seen their average crude reserves drop by 25 percent over the past five years, which could be a challenge for Big Oil's production and earnings in the coming years.
The world's largest international oil firms-including Exxon, Chevron, ConocoPhillips, and the European supermajors-had an average reserve life of 9.5 years as of the end of 2020, which was a drop of 25 percent compared to the average reserve life of oil reserves before the previous oil price crash in 2015, according to a note from Citi, cited by Tim Treadgold for Forbes.
"The IOC average of 9.5 years is now 25% below where the industry was prior to the oil price collapse in 2015," Citi said in a note last week, noting that the falling reserves of the companies are a "looming challenge" for the industry and its profitability.
"There is no bypassing this relationship between reserves and earnings, hence we think analysis of reserves trends is a highly important indicator of the health of a business," analysts at Citi wrote, as carried by Forbes.
The supermajors have reported lower reserves in their most recent reports, also due to the 2020 oil price and oil demand collapse, which forced all of them to write off billions of U.S. dollars off the value of reserves.
For example, in 2020, Shell's proved reserves-taking production into account-decreased by 1.972 billion barrels of oil equivalent (boe) to 9.124 billion boe at December 31, 2020. The proved undeveloped resources of Shell decreased by 932 million boe to 1.355 billion boe during last year, the firm's annual report showed.
ExxonMobil, for its part, has recently slashed its oil reserves by almost a third in what is the most radical reserve revision in the company's modern history.
Going forward, underinvestment in oil and gas exploration could create a supply gap, as soon as in 2025, France's supermajor Total warned earlier this year.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More