Oil Majors Fail To Find Reserves To Counter Falling Output



The expertise needed to develop new fields and infrastructure takes long periods to build up, he said. Hence, if companies lose this expertise, they may struggle to expand their portfolios when oil prices recover.

Depletion

Executives say the risk is not only that companies may lose future growth opportunities but also that existing reserves may not be fully exploited.

Production from oil fields falls over time, because reservoir pressure drops as oil is extracted. Fields on average experience natural depletion rates of around 15 percent per year, industry executives say, but companies generally reduce this to 3-5 percent by sinking additional wells, injecting gas or by using other capital-intensive techniques.

Cutting capex will increase depletion rates, if past experience is an indicator.

"That is a growing risk for the industry. If you go back to the 2008 and 2009 period ... we saw an increase worldwide in decline rates for all companies, basically for the entire industry, increase by a percent or two. And that's very significant," Chevron CEO John Watson told investors last week.

Using data going back to the oil drop in the mid-1980s, analysts at Bernstein calculated the rise in depletion rates was 3 percentage points within two years after an oil price collapse began.


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