When It Comes To Oil Reserves, "Size Doesn't Matter" -- Reuters, Bousso -- May 16, 2018

Updates

May 17, 2018: update here. 

Original Post 

For "Big Oil," size doesn't matter. Over at Reuters. Your thoughts?

A decade ago, the news that the world’s top oil and gas companies had less than 12 years of production left in their reserves might have caused a panicked sell-off in their shares. 

But as consumers try to move away from fossil fuels to cleaner and cheaper energy sources, investors and executives say reserve size is no longer the gold standard for measuring the value and health of a company.

The cost of developing existing reserves and the amount of carbon those reserves produce has now become more important, they say. This is leading to a profound shift in company strategies. 

An analysis by Reuters and Guinness Asset Management of the annual reports of those eight companies shows that the size of their oil and gas reserves, when added together, fell to 91 billion barrels in 2017. That was the lowest since the same amount in 2005.

So, Ron Bousso, over at Reuters, says "size doesn't matter." Your thoughts?

Poll at the sidebar at the right.

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This Guy Is A Complete Doofus

I'm talking about Ron Bousso over at the linked article above.

The data points from the article:

• reserves of the eight largest publicly-traded oil companies (XOM, Shell, Chevron, COP, Total, BP, Equinor [Statoil], Eni [Italy])
• total reserves of those eight companies: 91 billion bbls (2017); lowest since 2005
• XOM: shrunk the most, falling 16% since the slump began in 2014
• Shell: fell 6.5%
• BP, Shell: according to the writer, "reserves increased by a small 5% since 2014
• ENI: the only one to significantly boost its reserves by over 20% -- giant Zohr gas field off Egypt's coast
• cumulative reserve life for all eight companies: 11.7 years (2017) vs ....  author did not provide that number but did say that 11.7 years is the lowest in 20 years -- but did not say by how much
• says companies appear to feel that reserve life of 10 - 12 years "should be fine"

First observation/comment:  I think the writer was looking for a story; put a lot of time into researching the data; failed to get much of a story; but needed to recoup time spent on research to write something.

Second observation/comment: I can't believe the writer did not include the cumulative reserve life for the past ten years -- we have nothing to compare rhetoric with data.

Third observation/comment: anyone following the share price of these eight companies is aware tha the company performing the worst over the past two years is also the company with the worst resever numbers: XOM. XOM is certainly paying the price for not maintaining leadership in this area. Other than reserves, almost everything else was "equal" among the eight majors; companies with improving reserve numbers are doing better in the stock market

Fourth observation/comment: so, size does matter, but don't let me influence how you vote over at the sidebar poll.

Now for additional observations/comments:

1. Exxon, who did the worse, saw reserves life shrink from 17 years in 2014 to 15 in 2017. C'mon man, give me a break -- is that really all that significant. I don't think we really know the Guyana potential just discovered by Exxon

2. Eni: reserves shrunk from 10.6 to 10.1. When I saw that, I knew the writer was clueless.

3. The writer suggests in the final paragraph that "10 - 12 years reserve life should be fine." And where does XOM stand? at 15 years, 50% greater than 10 years reserve life. Yeah, something tells, me XOM knows that reserves matter. The equity market has told XOM that the size of reserves also matter.

Now, how does the author "rationalize" that it's okay that reserves have shrunk? Here it is, the first argument:

"With electric vehicles on the ascent and a peak for fuel demand on the horizon, the focus on the reserves is shifting to the quality of the reserves rather than the quantity.

There's so much "wrong" in that one sentence I am not even going to take the time to go through it. That argument suggests the writer is either a millenial living in Boston who does not own a car, or thinks like a millenial thinking like a millenial living in Boston who does not own a car.

One almost wonders if the writer is "talking his book," or working for XOM to reassure investors that just because XOM seems to have lost its mojo is no cause to worry. I can guarantee you that if XOM announces an "elephant" discovery tomorrow, it's share price will surge.

Five year look-back for XOM, Shell, Statoil, and Chevron, you decide. By the way, for newbies, when evaluating oil companies there are only two parameters to follow in the big scheme of things: a) execution (all oil companies have the same investing/market/environmental challenges -- it's an open book test); and, b) size of reserves. If you don't believe me, imagine what Shell's share price would do today if Shell announced that its crude oil life reserve had dropped to six months and they're not worried because they believe the future is Musk/Tesla/EVs (LOL):

By the way, I have thoughts on cumulative reserve life but this post is already too long and I need to move on. Maybe later.