Oil majors wrestle with reserves as industry health measure

As oil majors and investors grapple with the upheaval of the energy transition, some traditional metrics for producers’ long-term growth potential are up for debate. Climate change, the renewable energy boom and electrification are throwing demand scenarios for oil and gas wide open and casting a shadow over future returns in the sector. Where a company’s production-to-reserve ratio, or reserves life, was once a proxy for business sustainability, many now see exposure to stranded assets in reserves either too expensive or polluting to extract. Shell, which has only replaced its annual production with new reserves twice since 2011, faced analyst scrutiny this month after reporting its reserves slumped to fresh lows due to divestments and the writedown of a troubled Dutch gas field. The Anglo-Dutch supermajor is now able to maintain just 8.4 years of current production with its proved reserves, the lowest reserves life ratio of its oil major peers. Fielding questions over its upstream growth potential, Shell said it is pursuing a “value before volume” rationale, happy to ditch reserves in lower value projects in favor of higher margin developments such as North America and Brazil. “I do want to stress that not all barrels are created equally,… continue reading

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