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How Lower Crude Oil Prices Could Affect Crude Oil Reserves

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Crude oil reserves 

On November 23, 2015, the EIA (U.S. Energy Information Administration) reported that US crude oil and lease condensate proved reserves rose for the sixth straight year. The government agency reported that US crude oil and lease condensate proved reserves rose by 9.3% to 39.9 billion barrels in 2014, as compared to 2013. This is the highest proven reserve level since 1972. Per the EIA’s records, 2014 marks the fourth-highest year of US crude oil reserves. Cheaper borrowing facilities and higher oil prices between 2010 and 2014 contributed to mega oil and gas exploration projects. This resulted in a mammoth rise in crude oil reserves.

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Reserves rose in Texas and North Dakota

The proved reserves of crude oil and lease condensate rose in Texas by 2.1 billion barrels in 2014, as compared to 2013. Texas saw a bigger increase in oil reserves than any other state in 2014. The Permian and Eagle Ford regions of Texas were the major gainers. Likewise, North Dakota’s crude oil and lease condensate proved reserves rose by 0.4 billion barrels for the same period. The Bakken Shale play of North Dakota was the major gainer.

Lower oil prices

Oil prices have fallen more than 60% since June 2014. The EIA projects that $122 billion was spent annually between 2005 and 2014 for oil and gas exploration projects. The long-term lower prices could lead to lower investments in oil and gas exploration projects between 2015 and 2020. As a result, we could see oil and gas reserves drop in the coming years. Lower oil prices result in drillers abandoning financially unviable projects due to high drilling costs and operating conditions.

Lower oil prices have led to capital budget reduction by major oil giants like BP (BP), Eni (ENI), Royal Dutch Shell (RDS.A), and ExxonMobil (XOM). ETFs like the First Trust Energy AlphaDEX Fund (FXN) and the iShares US Oil Equipment & Services ETF (IEZ) are also affected by the uncertainty in the oil and gas market.

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