The People of America's Oil and Natural Gas Indusry

New Study Shows Investments in America’s Future

Mark Green

Mark Green
Posted June 5, 2013

Ernst & Young has a new study detailing $185.6 billion in total capital spending by oil and natural gas companies last year – the largest in the history of the firm’s oil and natural gas reserves study. Marcela Donadio of Ernst & Young:

“The increased exploration and development spend we’re seeing in this year’s study speaks to the incredible opportunity unfolding in tight oil from shale formations and the high cost of developing these unconventional resources.”

The study of U.S. upstream (pre-refinery stage) capital spending by the 50 largest companies (based on 2012 end-of-year oil and natural gas reserve estimates) found a 20 percent increase compared to 2011. Ernst & Young said the increase was largely due to increased tight oil and liquids activity. That refers to development in tight-rock formations, made possible by hydraulic fracturing and horizontal drilling. Details:

  • $26.3 billion in exploration spending in 2012.
  • $103.4 billion in development spending.
  • Companies spent 17 percent more to acquire properties for development in 2012 than they did in 2011 – spending for proved properties rose to $21.6 billion.
  • Tight oil developments and greater focus on natural gas liquids led to a 45 percent rise in U.S. oil/liquids reserves over the five-year study period. Oil reserves for the 50 companies rose to 23.3 billion barrels.

Ernst & Young’s chart:

EY capital Expenditures chart

The study found that discoveries of new reserves, which increased every year of the five-year study period, reached 3.8 billion barrels last year, leading to an oil production replacement rate of 258 percent. In other words, advances in technologies and development strategies are expanding the outlines of U.S. energy reserves. Donadio:

“For years, people said the industry would struggle to replace US oil reserves. The steady rise in extensions and discoveries as well as oil production replacement rates changes that story.”

But wait – there’s more! This good-news story gets even better when you consider that the Ernst & Young study covers just the largest 50 companies. Total domestic exploration and production spending in 2012 was $286 billion, according to Oil and Gas Journal data (subscription publication).

Here’s the larger point. Oil and natural gas company domestic spending – investments in America – can continue and grow with policies that allow more access to develop oil and natural gas in federal areas, especially those offshore. Erik Milito, API’s director of upstream and industry operations, talked about offshore development during a conference call with reporters:

“The United States has an opportunity that few nations ever get. We have a chance to be a dominant player in global energy markets and guarantee our energy security for decades ahead. Achieving this feat must include tapping into oil and natural gas resources off our coasts in the Atlantic, Pacific, the Arctic and eastern Gulf of Mexico.”

Milito pointed to rising estimates of U.S. oil and natural gas reserves. The oil estimate has climbed from less than 150 billion barrels in 2003 to more than 220 billion barrels today, he said. In just 10 years estimates of U.S. natural gas reserves have increased from about 1,600 trillion cubic feet (tcf) to more than 2,300 tcf, according to the U.S. Energy Information Administration. ICF International says U.S. natural gas reserves are more than 3,500 tcf.

Yet, much of these reserves remain unavailable for development. Milito said 87 percent of federally controlled offshore areas are off-limits to exploration and development. The Bureau of Ocean Exploration Management currently says that 88.6 billion barrels of oil and 398.4 tcf of natural gas have yet to be discovered on our outer continental shelf, he said, and those estimates may be low because they’re based on 30-year-old surveys.

“No other developed nation in the world keeps so much of its offshore energy resources out of reach. Putting this American energy to work would provide a major boost to domestic energy production, state and local economies, and government revenue.”

Certainly, as the Ernst & Young study shows, America’s oil and natural gas companies are willing to make the capital investments in domestic development and production – investments that put Americans to work, grow the economy, generate revenues for government and make America’s energy future brighter.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.