Why aren`t more U.S. companies replacing oil and gas reserves?

Success in oil and gas exploration and production sounds deceptively simple: Produce and replace reserves so as to maximize the wealth of the company. Recent performance of the US industry, however, demonstrates a tension between replacing reserves and maximizing profits. For the 15 years ended in 1995, the US industry replaced only 87% of the liquids (crude oil and natural gas liquids) and natural gas it produced. The 10 largest US-based companies have replaced only 61% of their US production the past 5 years but were substantially more profitable than the next largest 72 companies, per barrel of oil-equivalent (BOE). This is the first of a three-part article. The first part reviews briefly the reserves replacement and E and P profitability of the larger US-based oil and gas companies. The second considers the analytical difficulties and simplifications in more detail. The third part describes new analytical tools that can help overcome these constraints.