Chevron is struggling to replace its oil and gas reserves amid uncertainty surrounding the Hess deal
Chevron’s oil and natural gas reserves are at their lowest level in more than a decade. This highlights the importance of its planned acquisition of oil producers Hess, which has been stalled by a legal battle with Exxon Mobil.
Investors in energy companies use reserve replacement as a key metric. It gives them an idea of how much gas and oil the company could produce, and how long.
Chevron would be able to gain a stake on the lucrative oilfields in Guyana, which are run by Exxon, Chevron’s main rival.
Exxon, CNOOC and the other minor partner in Guyana, CNOOC, have sued Chevron for its bid to buy Hess, claiming that they had the first right of refusal over Hess's equity.
Chevron’s reserves or the amount that can be extracted from oil and gas decreased by 9.8 billion barrels equivalents in 2024. In part, the decline in reserves was due to land sales.
Paul Cheng is an analyst at Scotiabank. He said that the low rate of replacement reserves raises "red-flags" and highlights concerns over the company's long-term prospects.
Chevron reported that its reserve replacement rate over the last 10-year period was 88 %.
The organic reserve replacement rate of the company, which measures the new oil and natural gas added to reserves in comparison to what was produced, but excludes sales and acquisitions, was 45%. A ratio of 100 percent or higher means that the company replaces its reserves at the rate it depletes.
Cheng stated that the company's breakeven ratio was below the required level for the last three years. Scotiabank has a rating of sector outperform for Chevron.
Chevron refused to comment. On the fourth quarter earnings conference call, CEO Mike Wirth stated that the company is focused on developing high quality oil and gas assets including those in the Gulf of Mexico.
Chevron could benefit from the acquisition of Hess in October 2023. The deal, worth $53 billion, was struck for a total price of $53 billion. The deal would give the company a 30 percent stake in the more than 11 billion gallons of recovered oil equivalent in Guyana.
Wirth stated in October that the combined company would have a resource inventory depth well into the future - far beyond what we are able to predict with confidence.
Exxon does not yet have a replacement ratio for 2024. However, the company has struggled to replace its reserves in both 2023 and 2012. Cheng says that the No. 1 U.S. producer of oil also struggled in 2023 and 2020 to replace their reserves, and this may have contributed to the decision to purchase oil and gas producer Pioneer Natural Resources. Exxon refused to comment.
Exxon became the largest oil company in the Permian basin, the largest U.S. oilfield. Shell, a UK-based oil giant and TotalEnergies, a French oil major both had an average reserve replacement rate of over 100% in the last three years. Sheila Dang, Houston reporter; Jacqueline Wong, editor
(source: Reuters)
