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Oil, gas reserves fell in 2016 as prices stressed big producers, EY survey finds

As oil and gas price weakness dragged on in 2016, big energy companies again saw reductions in U.S. oil and gas reserves, business advisory firm EY found in a new report.

After a brutal 2015 in which oil reserves dropped by more than 10% and gas reserves fell by more than 20%, the declines were more subtle — 2.1% for oil and 1.4% for gas. Still, the cumulative effect of the downturn has been considerable.

"Study companies recorded more than 74.5 tcf of net downward reserve revisions from 2012 through 2016, concentrated primarily in a 41.0 tcf reduction recorded in 2015," EY said in its annual oil and gas reserves report. The study included the top 50 companies by year-end 2016 estimated U.S. oil and gas reserves.

The drop in reserves is an indicator of the stress the industry came under after both oil and gas prices began to slide in mid-2014. EY said capital expenditures for the companies examined in the survey were more than a combined $200 billion in 2014. By 2016, that number had fallen to less than half that total.

"Though not as dramatically as in 2015, the study companies aggressively cut capital spending even further in 2016 due to the low oil price environment. Total capital expenditures were US $85.7 billion in 2016, representing a 27% decrease from 2015 versus the 42% cut from 2015 to 2014," EY said.

Earnings also took a pounding. The 50 companies reported a combined profit of $30.81 billion in 2014. By the end of 2015, they combined for a net loss of more than $100 billion. The losses moderated in 2016 but still weighed in at nearly $35 billion.

Responding to the weak pricing and losses, producers become more effective during the downturn, something illustrated in the EY report. The five-year average production cost per barrel of oil equivalent was $13.38 through the end of 2016, according to the survey, but in 2016 that figure stood at just $10.84/boe. "All peer groups are seeing downward trends, though independents have shown the steepest decline in average production cost per BOE, down 23% from 2015," EY said. "Integrateds posted an 11% decline, while large independents' production costs per BOE were down 7%."