It's now well known that technological improvements in drilling techniques have helped propel U.S. oil production to levels unseen since the late 1980s and U.S. gas production to an all-time record high.
But fewer people recognize how technological progress in the oil and gas industry has also provided a major and unexpected uplift to U.S. oil reserves, which are now at the highest level since the late 1970s. Let's take a closer look at some of the key factors and companies helping drive this growth.
Big increase in US oil and gas reserves
According to Ernst & Young's recently released annual U.S. oil and gas reserves study, U.S. oil and gas reserves jumped by 9% last year. U.S. oil reserves grew by 2.1 billion barrels last year to almost 25.4 billion, while gas reserves increased by about 9% to roughly 178.7 trillion cubic feet (Tcf), the report found.
The Ernst & Young study, which examined upstream performance and spending data for the 50 largest U.S. upstream companies based on their year-end 2013 oil and gas reserves, found that the growth is U.S. hydrocarbon reserves was led primarily by smaller independent producers, instead of the large integrated companies.
Companies driving reserve growth
Much of the growth in oil reserves came from extensions, higher recovery rates, and new discoveries in key oil-rich plays like west Texas' Permian Basin, south Texas' Eagle Ford, and Bakken's North Dakota shale. In the Permian Basin, for example, the presence of stacked-pay formations in emerging plays like the Spraberry/Wolfcamp was a key source of reserve growth.
Indeed, Pioneer Natural Resources (NYSE:PXD) credited its reserve growth mainly to continued success with its horizontal drilling programs in West Texas' Spraberry/Wolfcamp shale and south Texas' Eagle Ford shale plays. The company added proved reserves of 141 million barrels of oil equivalent (boe) last year thanks to a combination of new discoveries, extensions, improved recovery, and technical revisions of previous estimates.
Meanwhile, in the Eagle Ford shale, EOG Resources (NYSE:EOG) has seen its reserve estimates more than triple in the four years since it began drilling there. In 2010, the company estimated its Eagle Ford proved reserves to be 1 billion boe. But thanks to new discoveries and continued improvements in drilling techniques, the company now reckons it's sitting on 3.2 billion boe in the Eagle Ford.
It wasn't just oil-rich plays that saw a sharp increase in reserves. U.S. gas reserves also grew markedly due to a combination of two factors: strong reserve growth in the Marcellus shale, the nation's largest and fastest-growing shale gas play; and higher natural gas prices, which improved the economics of natural gas recovery and allowed additional reserves to be classified as recoverable.
Southwestern Energy (NYSE:SWN), for instance, reported a whopping 74% year-over-year increase in its total proved reserves, which totaled 7 Tcf as of year-end 2013. The growth was led primarily by the company's successful development drilling program in the Marcellus, where proved reserves more than doubled, and higher gas prices.
The fact that U.S. oil and gas reserves have increased so sharply over the past few years, despite rapid depletion through production growth over the same period, is a testament to the power of technology. Radical technological advances have allowed energy companies to boost recovery rates from existing plays and discover entirely new plays within existing formations. If technological progress continues at a strong pace, domestic reserves could keep growing in the foreseeable future.