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Exxon cuts its oil reserves by 3.3 billion barrels

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Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 02:38:27

Exxon just announced they were lowering their proven oil reserves by 3.3 billion barrels, or about 15% of their total proven reserves

exxon-lowers-proved-reserve-estimates

Exxon actually took over four billion barrels of oil off their books as reserves, but added another billion bbls total at all other sites around the world, for a net loss of over 3 billion bbls. The reason for writing this oil off the books? Its uneconomic at current oil prices so it is no longer considered a proven reserve.

And Exxon isn't the only oil company doing this---Conocco-Phillips wrote off a billion barrels of their reserves yesterday.

Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again----but we're entering the third year of this oil glut with no end in sight to the glut and the concomitant low oil prices.

CHEERS!

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Exxon Mobil just cut its oil reserves by 3.3 billion bbls of oil.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Tanada » Thu 23 Feb 2017, 06:39:29

The only part of your post I would dispute is the idea there is 'no end in sight' for the supply demand balance issue most people are still calling a glut. The USA production has dropped enough over the last 18 months to start having a serious deficit effect on world supply. Simultaneously world oil consumption has continued its inexorable increase boosted a little by the relatively low oil prices of 2016. Thirdly even with the total lack of quota's before November 2016 several of the OPEC nations were selling less than they were in 2015 because they are past peak and several others are economic/military unrest areas that are supressing their ability to export any more than they currently are. Eventually a strong man will resume control of Libya, or it will be divided into smaller states each stable enough to produce its share of the oil fields effectively. Sooner or later Venezuela will reform its economy and get back to exporting in a major way. However for now at least Iran has stabilized, Russia, Iraq, Kuwait and KSA are all playing nice with the quota's and suppy is moving into closer balance with demand.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby ROCKMAN » Thu 23 Feb 2017, 10:01:15

"Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again" Actually booked reserves will increase with every $ the SEC price basis is increased. In reality the pubcos to a much bigger hit on total vaulation of their booked reserves: the lower oil price significantly decreased the value of the 85% of those remains reserves.

All done according to the SEC regulations.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby rockdoc123 » Thu 23 Feb 2017, 11:08:22

Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again----but we're entering the third year of this oil glut with no end in sight to the glut and the concomitant low oil prices.


each year reserves are calculated on the average price over that year. P1 are adjusted as to their economic viability, reserves removed from P1 do not disappear but simply move down to the P2 category. Markets generally don't care about this, they certainly haven't when it has happened in the past.

And given it is based on a decrease in average price in 2016 versus 2015 then one could expect to see these proven reserves be upgraded when the price rises to a 2015 or 2014 average, not when it is $100.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 11:33:55

"Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again" Actually booked reserves will increase with every $ the SEC price basis is increased.


The 3.3 billion bbls removed from the books by Exxon are no longer on the books, i.e. they are no longer considered reserves for accounting purposes. Same thing with the 1 billion bbls excised earlier in the week by Conocco. The value of this oil on Exxon's books is totally unaffected by changes in oil price because they are no longer on the books---the 3.3 billion bbls of oil were zeroed out and are no longer considered reserves by Exxon.

Its the biggest oil write-down in decades---maybe the biggest oil write-down ever.

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Last edited by Plantagenet on Thu 23 Feb 2017, 11:42:43, edited 1 time in total.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 11:41:01

Tanada wrote:The only part of your post I would dispute is the idea there is 'no end in sight' for the supply demand balance issue most people are still calling a glut. The USA production has dropped enough over the last 18 months to start having a serious deficit effect on world supply. Simultaneously world oil consumption has continued its inexorable increase boosted a little by the relatively low oil prices of 2016. Thirdly even with the total lack of quota's before November 2016 several of the OPEC nations were selling less than they were in 2015 because they are past peak and several others are economic/military unrest areas that are supressing their ability to export any more than they currently are. Eventually a strong man will resume control of Libya, or it will be divided into smaller states each stable enough to produce its share of the oil fields effectively. Sooner or later Venezuela will reform its economy and get back to exporting in a major way. However for now at least Iran has stabilized, Russia, Iraq, Kuwait and KSA are all playing nice with the quota's and suppy is moving into closer balance with demand.


Time will tell.

Oil going into storage continued to rise through 2016 and early 2017 (although there was a small drawdown in the US this week). If oil storage drawdowns become larger and more regular then yes the glut will be on its way to ending.

BUT, IMHO any increases in oil price will restart oil production from US shale and elsewhere, tending to extend the glut.

AND, IMHO if there is any kind of recession that causes a drop in demand, then the oil gut will likely be extended.

CHEERS!
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby ROCKMAN » Thu 23 Feb 2017, 11:56:01

P - "...any increases in oil price will restart oil production from US shale and elsewhere, tending to extend the glut." So you mean higher oil prices will extend the "glut" back to the level we had when oil was $90+/bbl? As opposed to the "glut" we had when oil it $30/bbl as well as the "glut" we have today at $55/bbl?

Your statement makes it sound as if there's a "glut" of oil whether the price is $30, $55 or $90 per bbl.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby rockdoc123 » Thu 23 Feb 2017, 12:07:28

The 3.3 billion bbls removed from the books by Exxon are no longer on the books, i.e. they are no longer considered reserves for accounting purposes. Same thing with the 1 billion bbls excised earlier in the week by Conocco. The value of this oil on Exxon's books is totally unaffected by changes in oil price because they are no longer on the books---the 3.3 billion bbls of oil were zeroed out and are no longer considered reserves by Exxon.


wrong...SEC only requires submission of proven reserves. But every company keeps a record of everything at least up to possible reserves and most keep contingent resources these days as well. If the company is sold it will be valued on all the reserves not just proven. The auditors move the reserves back and forth through the categories. One year with low oil price might mean some of what was proven now becomes probable or possible and in the worst case scenario contingent resource. The next year if oil prices move back up above the year before those reserves might qualify to be upgraded from probable or possible or resource to proven reserves. It happens all the time. That is why in Canada where companies are required to report probable reserves each year they have to show reconciliation charts in the 51-101 filings which shows movement of reserves through categories.
Exxon doesn't "zero out the reserves" that is just silly. What will happen as price rises over time they will continue to develop what makes sense economically and when time comes for next years reserve report it will be done with a new average price and if higher some or all of those reserves will be recognized a proven once again.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby ROCKMAN » Thu 23 Feb 2017, 12:13:51

And a bit of history about oil patch write downs. From the Motley Fool in 2015. Looking at stocks, like Chevron's a pretty good call: increasing from $78/share to $118 (a 50% gain) in a little more then a year...and paying dividends in the process:

"If you ask any veteran of the oil industry about the current oil price plunge, you’re likely to hear a very familiar phrase: “We’ve seen this before.” This is a good point — oil prices crashed by more than 75% from peak to trough during the financial crisis. Looking further back, oil prices plunged from US$25 per barrel in early 1997 to below US$10 in 1998. Each time, oil came roaring back. So will history repeat itself this time?

Before answering this question, one has to look even further back. From November 1985 to April 1986, oil prices plummeted by nearly 70%. But that time, the price remained depressed for years, only spiking back up when Iraq invaded Kuwait in the early 1990s. So it’s pretty safe to say that history will repeat itself. But will it be a repeat of 1998 and 2008? Or will it be a repeat of 1986? And as an investor, what should you do? Below we take a look.

2008 and 1998

The oil crash in 2008 was fairly unique, having been caused by the worst economic crisis of our lifetimes. It would be a mistake to compare that crash — which was caused by a lack of demand — to this one. It’s more worthwhile to focus on 1998. At that time, production from OPEC countries was booming, and the Asian financial crisis was depressing demand. As mentioned, oil prices plunged below $10. Interestingly, at this time, Suncor Energy was planning Project Millenium, a $3.4 billion expansion to its oil sands operations. As the company argued, you want to be building during a down market, when input costs are lower.

Suncor’s moves turned out to be brilliant. OPEC cut production, the Chinese economy went on a spectacular run, and oil prices took off. No wonder the company today is pushing ahead with its Fort Hills megaproject. If oil prices recover in a similar way, as Suncor expects, then the company will again be vindicated.

But hold on: What about 1986?

The oil price crash in 1986 has a lot in common with today’s events. At that time, Saudi Arabia got tired of increased production in other geographies and decided to boost output to regain market share. What followed was a war of attrition. And guess who lost? Higher-cost producers in the United States. Early construction of Alberta’s oil sands was also brought to a halt. Oil prices did spike up during the first Iraq war, but then fell right back and stagnated for most of the 1990s. Only in 1998, when OPEC cut production — and China went on an incredible run — did oil prices finally take off.

So what should an investor do?

Let me ask you this: Is Saudi Arabia about to cut production? Is China (or any other country) about to take off? Personally, I have my doubts. For these reasons, the current crisis looks a lot more like 1986 than 1998. So if history repeats itself, then Suncor is likely making a big mistake. And as an investor, you should stay away. If you’re looking for a turnaround story, the free report below reveals a much better option than any oil company."
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 13:07:01

ROCKMAN wrote:P - "...any increases in oil price will restart oil production from US shale and elsewhere, tending to extend the glut." So you mean higher oil prices will extend the "glut" back to the level we had when oil was $90+/bbl? As opposed to the "glut" we had when oil it $30/bbl as well as the "glut" we have today at $55/bbl?


1. Obviously, increases in oil production will tend to extend the glut.

2. AND, equally obviously, any increase in oil prices will tend to increase oil production from US shale and elsewhere. This in turn will tend to extend the glut (see #1 above).

3. The actual oil price at any given time is a function of supply and demand and short term trading moves. There is no specific oil price that means "glut" and there is no specific oil price that means "not-glut".

-------------------------

R---I think we are still in an oil glut because there is still excess oil going into storage---Do you think the oil glut has ended?

PS: I like your long quote from the Motley Fool investment site. FYI I bought several oil service companies the week oil fell to $26/bbl and they're up nicely---so I'm thinking of selling now precisely because I'm skeptical the glut is over and I'm concerned oil prices may head lower again---especially if the US goes into recession later in 2017.

Cheers!
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby AdamB » Thu 23 Feb 2017, 13:47:04

ROCKMAN wrote:"Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again" Actually booked reserves will increase with every $ the SEC price basis is increased. In reality the pubcos to a much bigger hit on total vaulation of their booked reserves: the lower oil price significantly decreased the value of the 85% of those remains reserves.

All done according to the SEC regulations.


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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby AdamB » Thu 23 Feb 2017, 13:51:07

ROCKMAN wrote:"If you ask any veteran of the oil industry about the current oil price plunge, you’re likely to hear a very familiar phrase: “We’ve seen this before.”


And we have said it here. Surprising that such basic truths are ignored, but then until you've lived through a few of these oil fear memes (the best one being during the real energy crisis of the 70's) and watched your livelihood and income bounce around with the industries fortunes, maybe it just doesn't stick.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Subjectivist » Thu 23 Feb 2017, 14:41:31

Plantagenet wrote:Exxon just announced they were lowering their proven oil reserves by 3.3 billion barrels, or about 15% of their total proven reserves

exxon-lowers-proved-reserve-estimates

Exxon actually took over four billion barrels of oil off their books as reserves, but added another billion bbls total at all other sites around the world, for a net loss of over 3 billion bbls. The reason for writing this oil off the books? Its uneconomic at current oil prices so it is no longer considered a proven reserve.

And Exxon isn't the only oil company doing this---Conocco-Phillips wrote off a billion barrels of their reserves yesterday.

Of course, this oil could go back on the books if oil prices ever rise up to ca. $100/bbl again----but we're entering the third year of this oil glut with no end in sight to the glut and the concomitant low oil prices.

CHEERS!

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Exxon Mobil just cut its oil reserves by 3.3 billion bbls of oil.



As I just pointed out over on the oil price thread, the EIA average price for WTI in 2016 is $43.33, which is the lowest average in a decade. The big oil companies, actually all oil companies, had to base their current reserve assets on that price. The SEC rules give them little or no wiggle room on this issue, so nobody should be caught off guard by these events.

The other thing is the oil companies dudn't actually lose any of thiswritten down oil, they still know where it is and what they expect each reservoir to cost in development before it can be produced. The 52 week moving average is already higher than the 2015 yearly average price was that last years write downs were based on. That meanseven if nothing changed price wise for the next 10 months, as unlikely as that is, the write downs just done would be reversed in February 2018.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 15:09:11

Subjectivist wrote:the oil companies dudn't actually lose any of thiswritten down oil, they still know where it is and what they expect each reservoir to cost in development before it can be produced.


They don't lose the oil, but they lose the value of the oil on their books. For instance, Exxon's oil reserves are now 15% smaller then they were last week. For people who care about value investing---a shrinking minority in this stock market----the loss of 15% of their reserves means Exxon stock is worth less.

They also lose the "time-value" of the money they've sunk into these failed oil fields. For example, lets say Exxon has sunk a couple of billion dollars into buying the land and exploring and developing it before they wrote off the 3.3 billion bbls of oil. That couple of billion dollars is GONE. If Exxon still had the two billion or whatever that they wasted on these written down assets, they could put that money in the bank or buy back Exxon stock or invest in better oil prospects.

Subjectivist wrote: if nothing changed price wise for the next 10 months, as unlikely as that is, the write downs just done would be reversed in February 2018.


Thats unlikely. Some of the written down oil plays just don't make sense now---Some of it is oil sands in Alberta, for heaven's sakes. I doubt EXXON is even interested in that now.

Exxon is moving in a completely different direction now---in January 2017 Exxon bought up a big parcel of shale oil land in Texas, for instance. Thats where the action is now---tight oil shales. Exxon may be late to the game in TOS, but its going to be a big focus for them going forward.

exxonmobil-acquire-companies-doubling-permian-basin-resource-6-billion-barrels

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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Cog » Thu 23 Feb 2017, 15:38:50

XOM stock should be less based on less reserves but the stock market ain't logical.

XOM up $0.73/share or 0.90%

Maybe its because oil went up again today.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 16:26:53

Cog wrote:XOM stock should be less based on less reserves but the stock market ain't logical.

XOM up $0.73/share or 0.90%

Maybe its because oil went up again today.
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At some point soon EXXON will add about 6 million bbls/oil to their reserves---thats how much oil should be in the Bass Land they just bought in the Permian Basin in Texas. Of course they need to do a little more drilling first to prove it up. It would also help if EXXON showed they have mastered the little tricks of producing TOS.

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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 17:20:53

" any increase in oil prices will tend to increase oil production from US shale and elsewhere. This in turn will tend to extend the glut"


Right on schedule, US oil production rose again last month. Now its up over 9 million bbls/day.

US oil production has gone up 500,000 bbls a day just since October---which not so coincidentally is when KSA and OPEC announced their plan to voluntarily cut their production, causing oil prices to start going up.

In the USA Higher oil prices = higher oil production.

If you add up the cuts that KSA and OPEC have made, and then you add up the increased production coming from places like the USA, Iraqi Kurdistan, Nigeria, etc.---it really looks like there isn't much change on a global basis from a year ago.

OPEC-Production-Cuts-USA-Nigeria-Production-Increase-Heres-The-Cheat-Sheet

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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby ROCKMAN » Thu 23 Feb 2017, 19:12:01

P - Excellent! And what is that price that will bring about equilibrium?
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Cog » Thu 23 Feb 2017, 20:20:54

ROCKMAN wrote:P - Excellent! And what is that price that will bring about equilibrium?


The price at which I will make 10% YOY on my XOM and BP stock.
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Re: Exxon cuts its oil reserves by 3.3 billion barrels

Unread postby Plantagenet » Thu 23 Feb 2017, 20:22:41

ROCKMAN wrote:P - Excellent! And what is that price that will bring about equilibrium?


The equilibrium price in a market is the theoretical value where supply and demand are in equilibrium.

Hey---I used to work at a famous oil company, but now I"m just an academic geophysicist so a theoretical model is good enough for me these days.

BUT you are the real deal----a working oil geologist making the big bucks in the real oil biz. You are dealing with oil prices and oil contracts and potential oil plays every day.

So dish---what is the price of oil you need to start buying land, making hole, producing oil and making money on your plays?

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