Investment in US oil and gas industry hits highest level in decade

June 7, 2013

The top 50 U.S. oil and gas companies spent $185.6 billion on exploration and developing new production in the United States in 2012, according to a new study.

Photo credit: Jonathan Nafzger/iStockphoto/Thinkstock

Investment in U.S. oil and gas production has reached the highest level in a decade, leading to a boom in exploration, development and production, accounting firm Ernst & Young revealed in its latest report on U.S. oil and gas reserves.

The study also found that collectively the top 50 U.S. oil and gas companies spent $185.6 billion on exploration and developing new production in the United States in 2012, which was a 20 percent increase on levels from the previous year and the highest sum in the decade in which Ernst & Young has prepared the analysis. Similarly, acquisition spending also recorded the highest level seen in the last ten years. All this was achieved amid a steep drop in aftertax profit of 58 percent, driven mostly by low natural gas prices, Oil and Gas Journal reported.

Total exploration spending in 2012 reached $26.3 billion — a rise attributed to higher tight oil and liquids activity. Meanwhile, development spending last year went up to $103.4 billion, 21 percent higher than in 2011. Investments are pouring into the U.S. oil and gas industry, as developments in hydraulic fracturing and horizontal drilling technologies continue to provide opportunities to access vast oil and gas reserves that were previously considered too costly to drill. In 2012 U.S. oil production reached 6.5 million barrels a day, the highest level since 1996, according to the U.S. Energy Information Administration.

According to Marcela Donadio, U.S. oil & gas leader for Ernst & Young, the huge steps the industry has taken to access what used to be considered unreachable deposits creates immense business opportunities that everyone wants to take advantage of. That is why investors are willing to pay huge costs to become part of the game, she added.

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Further figures released in the report showed that companies spent an average of 17 percent more to acquire properties, in comparison to costs in 2011. Proved property investments rose to $21.6 billion in 2012, up from almost $14 billion in the previous year, whereas spending for unproved properties came in at $33.8 billion in 2012. Meanwhile, finding and developing new reserves became more expensive and hit $45.03/boe in 2012, reflecting a downward revision of gas reserves. Total gas reserves reported by companies were down 10 percent by the end of 2012, compared with the same period in 2011. Still, total gas production last year increased 4 percent, the report noted.

Ernst & Young also said that U.S. liquids reserves have soared by 45 percent over the last five years, due to tight oil and natural gas liquids development. Last year oil reserves for the top 50 companies reached 23.3 billion bbl, while production went up 13 percent to 1.6 billion bbl. Extending existing reserves and discoveries of new reserves increased to 3.8 billion bbl in 2012. These helped to boost oil production replacement rates to 258 percent last year, despite widespread fears that the industry would fail to replace U.S. oil reserves.

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