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Understanding ExxonMobil’s upstream reserves and production

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Proved reserves

Investors and analysts closely watch an energy company’s proved reserves.

The Society of Petroleum Engineers, or SPE, describes proved reserves as “…those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations.”

ExxonMobil’s (XOM) proved reserves have been steadily rising over the last few years. Its proved reserves rose from just under 22 billion barrels of oil equivalent, or boe, at the end of 2007 to just over 25 billion boe at the end of 2013.

The 2010 bump in reserves came from its acquisition of XTO Energy.

When this trend is broken down regionally, an important trend emerges. ExxonMobil’s reserve additions have mainly come from North America. The reserve additions from North America had to make up for reserve drawdowns from the rest of the world.

This highlights a dire situation for corporations that aren’t controlled by the government—like ExxonMobil, Chevron (CVX), BP (BP), and Total S.A. (TOT). There aren’t many places left in the world where these corporations can find new oil and gas reserves.

Globally, most large oil and gas reserves or regions are under tight control. They’re controlled by the government or government-controlled entities. Canada and the US are among the few places in the world where large enough reserves are accessible to corporations—like ExxonMobil and Chevron.

ExxonMobil and Chevron are the top two holdings of the iShares U.S. Energy ETF (IYE). Combined, they account for ~35% of the ETF’s holdings.

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Production

ExxonMobil’s production numbers reflect another problem that energy companies face. Production is falling. It’s hard to find reserves. Also, it’s expensive to develop reserves.

Nevertheless, the company seems to be holding its production relatively steady. For the last few years, it’s production has been near 4 million boe.

In 2Q14, production dropped to well below 4 million boe. ExxonMobil’s 75-year concession in Abu Dhabi’s onshore fields expired. Other stakeholders—including Chevron, BP, and Total S.A.—also saw their concessions expire.

There’s another important trend that you should note. Gas has a growing share in ExxonMobil. Now, gas is almost even with oil’s share. This reflects ExxonMobil’s acquisition of XTO Energy. It also reflects the company’s increased focus on American shale plays.

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