2012 Finding and Development Cost Study
Exploration & Production (Citi)
Detailed Analysis of 48 Independents and 12 Integrateds
22 April 2013 ¦ 260 pages ir.citi.com
Independents’ Aggregate Fully-Loaded F&D Costs Surge 154%... – The aggregate
fully-loaded F&D tab for our study group of 48 independents surged ~154% to
$44.17/BOE in 2012 vs. $17.39/BOE in 2011 and the five-year average of $16.88/BOE.
The increase was predominantly due to negative domestic natural gas reserve
revisions and an uptick in development costs associated with oil/liquids activity.
...Driven By Negative Natural Gas Reserve Revisions... – On a worldwide basis, a
fifteen-fold yr/yr rise in total reserve revisions drove the fully-loaded F&D increase.
Importantly, the 4,279 MMBOE of total negative revisions consisted of 4,639 MMBOE
of negative natural gas revisions due to weak domestic prices and technical revisions,
offset by 360 MMBOE of positive oil & liquids revisions. Further, companies shifted
drilling plans to oil and liquids-rich plays such that dry natural gas activity was removed
from their five-year plans (period mandated by the SEC to book proven reserves).
...And Underscoring A Sharp Drop In Overall Economic Returns – After-tax cash
flow per BOE produced by the independents declined by ~9% year-over-year to
$25.36/BOE. Thus, the group's RRE ratio, our long-held measure of profitability and
relative propensity for growth, fell sharply to 0.6x last year. This is significantly lower
than the 1.6x ratio in 2011, 2.2x in 2010 and the 15-year average of ~1.7x. But
excluding the negative natural gas revisions, the 2012 ratio rises to 1.3x.
The Integrateds’ Fully-Loaded Tab Increases 45%... – The aggregate fully-loaded
F&D tab for our study group of 12 integrateds rose ~45% to an all-time high of
$29.72/BOE last year. The rise was driven by a drop in reserve bookings concurrent
with higher total E&D spending due to a surge in domestic oil and liquids drilling activity
while net reserve revisions were positive due to reserve additions outside of the U.S.
...While Drill Bit Tabs For Both The Independents And Integrateds Rose – Drill bit
F&D costs (excluding acquisitions & revisions) for the independents rose ~14% yr/yr to
$19.32/BOE (vs. the five-year average of $15.67/BOE), driven by the continued shift to
oil & liquids-rich regions and accelerated drilling activity. Similar to the past few years,
the integrateds' drill bit F&D tab was more than double that of the independents given
their greater international focus and increased ~47% yr/yr to $40.67/BOE.
Worldwide Drill Bit Reserve Replacement Fell In 2012... – Worldwide reserve
replacement via the drill bit fell for both the independents and integrateds last year with
continued disparity between the two – independents at 197% vs. 229% in 2011, and
the integrateds at 68% vs. 89% in 2011.
...While U.S. Natural Gas Reserve Replacement Also Declined – U.S. natural gas
reserve replacement via the drill bit in aggregate for the independents and integrateds
declined slightly last year to 177%. However, both the independents and integrateds
incurred significant negative domestic natural gas reserve revisions. Thus, including
revisions, aggregate U.S. natural gas reserve replacement via the drill bit for the
combined groups was -45% last year vs. 167% in 2011.
Top Picks – At this juncture, among our top picks are APC, COG, EOG, NBL and PXD. |
