Wednesday, March 7, 2018

Shale Law in the Spotlight: Overview of the U.S. EIA Annual Report on U.S. Crude Oil and Natural Gas Proved Reserves in 2016

Written by Chloe Marie – Research Fellow

On February 13, 2018, the U.S. Energy Information Administration (EIA) issued its annual report on U.S. Crude Oil and Natural Gas Proved Reserves for the Year-end 2016. This report analyzes all data filed on Form EIA-23L, Annual Report of Domestic Oil and Gas Reserve and submitted by 461 of the 481 sampled operators of U.S. oil and natural gas fields. This article provides a brief summary of the U.S. EIA report’s major findings relating to crude oil and natural gas proved reserves and production.

Crude oil and lease condensate proved reserves

According to the report, crude oil and lease condensate proved reserves continue to remain steady at a level almost identical to that in 2015. As of the end of December 2016, the U.S. holds 35,213 million barrels of crude oil and lease condensate proved reserves. Interestingly, the report noted that there has been an increase in proved reserves in the lower 48 states though a decline of 865 million barrels in proved reserves has been observed in Alaska and the Federal offshore.

Both Texas and Oklahoma registered an increase in their crude oil and lease condensate proved reserves by 7% and 23% respectively.  In 2016, Texas accounts for 941 million barrels of proved reserves primarily coming from the Permian Basin of West Texas. As for Oklahoma, the state holds 386 million barrels of proved reserves as of 2016 with an increase noticed in the South Central Oklahoma Oil Province (SCOOP) and the Sooner Trend, Anadarko, Canadian & Kingfisher (STACK) plays.

In Alaska, the report pointed out a 25% drop of 530 million barrels compared to 2015 as well as that there were no commercial discoveries in the Federal Offshore Pacific in 2016.

In addition, the U.S. EIA highlights that 44% of all U.S. crude oil and lease condensate proved reserves come from seven tight plays, including the Bakken/Three Forks, Bone Spring & Wolfcamp, Eagle Ford, Woodford, Niobrara, Marcellus and Barnett plays.

Regarding production, the U.S. EIA estimates that U.S. crude oil production and crude oil and lease condensate production respectively amount to 3,242 million barrels and 3,223 million barrels, representing a drop in the amount of 6% for both substances compared to 2015. According to the U.S. EIA, “this is the first decline for both of these production estimate series after seven consecutive years of production increases” before adding that the lower 48 states registered a drop of 9% in terms of production whereas Alaska and the Federal Offshore respectively reported a 2% and 3% increase.

Natural gas proved reserves

The U.S. EIA observed a 5% increase in the proved reserves of natural gas at the end of 2016, which corresponds to 16.8 Tcf more in reserves compared to 2015. As of December 31, 2016, the natural gas proved reserves account for 341.1 Tcf. In addition, the U.S. EIA noted a rise in natural gas pricing, which was reported at $3 per MMBtu as of the end of the year 2016.

The report shows that the states of Pennsylvania and Oklahoma experienced the highest growth in natural gas proved reserves in 2016, respectively by 11% and 12%, then followed by the states of Ohio, Texas, West Virginia, Louisiana, and North Dakota. On the other hand, the states of Alaska and New Mexico reported the largest net decreases in natural gas proved reserves in 2016.

Interestingly, the report states that “the U.S. total of natural gas extensions and discoveries were 38.4 Tcf in 2016 … and 84% of those discoveries were from shale plays.” The states of Pennsylvania and West Virginia reported the largest extensions and discoveries of natural gas reserves, mostly coming from extensions in the Marcellus shale play.

In addition, the U.S. EIA found that natural gas proved reserves from shale have risen from 175.6 Tcf in 2015 to 209.8 Tcf in 2016. The agency also declared that “the share of natural gas from shale compared with total U.S. natural gas proved reserves increased from 54% in 2015 to 62% in 2016.” Pennsylvania, Texas, and West Virginia figure among the top three states with the largest reserves of shale gas proved reserves in 2016, at 61 Tcf, 56.6 Tcf, and 23.1 Tcf, respectively.

Furthermore, the report shows that 94% of U.S. shale gas proved reserves in 2016 come from eight shale plays, including Marcellus (PA, WV), Eagle Ford (TX), Woodford (OK), Wolfcamp & Bone Spring (NM, TX), Barnett (TX), Utica/Point Pleasant (OH), Haynesville/Bossier (LA, TX), and Fayetteville (AR), in order of importance.

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