Exxon’s gas focus helps it replace 100 per cent of production

ExxonMobil, the world’s biggest western publicly listed oil company, has claimed more reserve additions in 2009 than in any year in the past decade, as massive liquefied natural gas projects from Papua New Guinea to Australia brought in almost 1bn oil-equivalent barrels. At the end of 2009, Exxon’s proved reserves base, using its own definition of year-end reserves, increased to 23.3bn oil-equivalent barrels, split evenly between liquids and gas.

Additions to its proved reserves in 2009 totaled 2bn oil-equivalent barrels, replacing 133 per cent of production. Using the Securities and Exchange Commision’s pricing basis, Exxon’s proved reserves replacement was 1.5bn oil-equivalent barrels in 2009, replacing 100 per cent of production. Exxon uses the long-term pricing basis that the corporation uses to make its investment decisions in doing its internal calcuations. This is different from the SEC, which uses 12-month average prices for the 2009 year-end reserves calculation.

Though the definitition of reserves replacement used by the SEC and Exxon internally are different, the trend is the same. And that is that Exxon is doing better than it has in some time in replacing reserves, partly because of its increased focus on natural gas.

While oil is still the primary driver of Exxon, there is no doubt gas is no longer the poor relation. At the end of last year, Exxon underlined the growing importance of gas to its future, paying $31bn in stock for XTO Energy, which will give it a large position in the booming domestic natural gas scene. The deal included a further $10bn in XTO debt.

The fuel is not only a cleaner-burning alternative to coal for power production, but it also could have a future as a cleaner-burning alternative to oil as a transportation fuel. While Congress has yet to agree on any kind of clean-energy legislation, an increasing number of lawmakers are lining up on the side of natural gas. In October, Congressman Tim Murphy and Congressman Dan Boren launched the Congressional Natural Gas Caucus to develop Congressional policy on the importance of gas in the nation’s energy portfolio. Seventy Congressmen have signed on.

Watch for further inroads into gas by Exxon. It is a telling point that the 10-year average reserves replacement ratio, calculated the way Exxon does it, is 112 per cent, with liquids replacement at 99 per cent and gas at 131 per cent. In other words, its oil reserves are shrinking – albeit very, very slowly – while its gas reserves are growing. You can expect that trend to continue.

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