BP Faces Challenges as Oil Reserves Fall

There may be a lot of oil left in the world, but finding large amounts of new low-cost reserves remains a daunting task 

Stephen Simko, CFA 14 September, 2015 | 2:27PM

The oil majors face a key challenge: Replacing reserves is becoming increasingly difficult for a company of BP's size. There is, of course, a lot of oil left in the world, but finding large amounts of new low-cost reserves remains a daunting task, in no small part because many governments now don't allow Western companies access to their resources.

BP's finding and development costs have been rising

Outside of Russia, BP (BP.) produced the equivalent of 860 million barrels of oil and gas in 2013; this represents the level of reserves it needs to book annually to prevent reserves from declining. But there simply are not this many barrels of conventional – that is, low-cost – oil and gas reserves annually accessible to BP. This has forced the majors to increasingly focus on higher-cost resources; deep water, oil sands, and shale gas, for example.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC287.25 GBX-2.71

About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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