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THE WALL STREET JOURNAL: Exxon Has Off Year Discovering New Oil

February 16, 2008; Page A2

Exxon Mobil Corp.’s success in finding new oil and natural gas is slipping.

The world’s biggest publicly traded oil company by market capitalization said Friday that it replaced just 76% of the oil and gas it produced last year, using a reserves-accounting method favored by the Securities and Exchange Commission. Using a different accounting method that Exxon says is more representative of its business, the company said it replaced 101% of its production last year.

Either way, Exxon was less successful in 2007 than in prior years in finding new fossil fuel. Exxon said its 101% reserve-replacement number in 2007 was the company’s lowest in 14 years.

Alan Jeffers, an Exxon spokesman, said the company isn’t worried that its 101% reserve-replacement number in 2007 was the lowest since 1993. Last year was Exxon’s “14th consecutive year of more than replacing what we produced,” he noted. “We’re proud of that fact.”

The lackluster reserve-replacement numbers are a symptom of the difficult operating environment Western oil companies face. Much of the remaining oil, Exxon Mobil Senior Vice President Mark Albers said this week, is “found in complex geologic formations, in remote locations and under harsh conditions.”

What’s more, rising resource nationalism is making Exxon’s job more difficult. A big part of the reason Exxon had such a low reserve-replacement number was Venezuela’s appropriation of Exxon assets there. Excluding the Venezuelan appropriations, and also excluding the smaller effect of property sales, Exxon said its reserve-replacement ratio in 2007 was 132%.

The announcement also stokes fears about whether there will be enough oil in coming years. Demand is rising quickly, and the big Western oil companies are not raising production reliably or replacing production with new reserves. This fear is one reason for the run-up in oil prices in the past few years. New York oil futures Friday finished at $95.50 a barrel, up four cents for the day and 7.4% below an inflation-adjusted high of $103.10 a barrel reached in April 1980.

Don’t count Exxon out too quickly, says Michelle Michot Foss, head of the Center for Energy Economics at the University of Texas. The Irving, Texas, company is still meeting its obligations to deliver fuel and return heady profits. “Even though their reserves figures may be low, there are no signs that they aren’t delivering to their customers,” she says.

Reserves accounting by oil companies traditionally has been a matter of interpretation. Oil companies have calculated their “proved” reserves — oil and gas that can be produced using standard technology and market prices — based on their own internal price assessments. But in the wake of a 2004 reserves-accounting scandal at Royal Dutch Shell PLC, many oil companies began reporting their reserves according to a method preferred by the SEC. Under that method, designed to give investors an apples-to-apples comparison among oil companies, companies calculate their reserves based on commodity prices on a single day: Dec. 31.

Exxon now reports its annual reserve-replacement numbers both according to the SEC’s guidance and according to the company’s prior practice. In releasing its numbers Friday, Exxon reiterated that calculating reserves based on a single day’s price is “not relevant to investment decisions.”

Write to Jeffrey Ball at [email protected] and Russell Gold at [email protected] and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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