AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
Success in oil and gas exploration and production sounds deceptively simple: Produce and replace reserves so as to maximize the wealth of the company. Recent performance of the U.S. industry, however, demonstrates a tension between replacing reserves and maximizing profits.
For the 15 years ended in 1995, the U.S. industry replaced only 87% of the liquids (crude oil and natural gas liquids) and natural gas it produced.  The 10 largest U.S.-based companies have replaced only 61% of their U.S. production the past 5 years but were substantially more profitable than the next largest 72 companies, per barrel of oil-equivalent (BOE).
In general, the smaller the company, the more of its production it replaced with new reserves but the lower its profitability per BOE. Wide variations in reserves replacement and profitability were noted among companies of all sizes. 
These results underscore the difficulties and complexity involved in developing optimal reserves replacement strategies. Companies may have vast numbers of potential reservoir and prospect options, each with varied technology and ownership alternatives, and subject to project-level and global risks. These options need to be defined and comprehensively assessed on a comparable basis for optimal strategic decisionmaking.
The complexity of data and options associated with this process necessitates simplification, such as suboptimizing by region or function (e.g., exploration versus development), narrowly searching for options, limiting technology choices, proactive purchase options, or minimal risk or scenario assessments.
Such simplifications can reduce the quality of evaluation and planning for reserves replacement, but new analytical tools--models, databases, and approaches--have been devised to meet the difficulties in reserves replacement planning. To the extent they are applied, reserves replacement planning will be more comprehensive, systematic, responsive to risk, and subject to optimization. Such approaches can eliminate the apparent choice between full reserves replacement and profitability--to the greater success of a company and the industry.
This is the first of a three-part article. The first part reviews briefly the reserves replacement and E&P profitability of the larger U.S.-based oil and gas companies. The second considers the analytical difficulties and simplifications in more detail. The third part describes new analytical tools that can help overcome these …