Finding and development costs for drilling alone, for drilling plus reserve revisions, and for acquisitions increased last year, furthering a five-year upward trend, according to Howard Weil's annual reserve-replacement and finding-cost study. This year, the New Orleans investment-banking firm tracked 2004 results for 50 independent oil and gas companies, versus 46 companies in 2003. The mean F&D cost for the group from all sources, including exploration and development drilling, acquisitions and reserve revisions, was $10.79 per barrel of oil equivalent (BOE), up from $8.51 the prior year and $6.19 in 2000. The best-performing companies in 2004 for this all-in metric were Ultra Petroleum at $2.33 per BOE, Questar Corp. at $4.40, Equitable Resources Inc. at $4.82, The Williams Cos. at $5.57 and Western Gas Resources at $6.81. Ultra Petroleum, which perennially tops this list, is adding natural gas reserves in the Powder River Basin's Pinedale Anticline at a rapid clip. Ultra ended the year with 254 million BOE of reserves (some 93% gas). More production growth is expected because the company's reserves are 63% proved undeveloped and it has scheduled some 100 wells for drilling this year. Finding costs for the group from drilling only (without acquisitions or revisions) rose to a median of $17.65 per BOE, compared with $4.55 in 2002 and $5.09 in 2000. The five-year average is $10.26. Howard Weil says the companies posting the lowest costs from drilling alone were Ultra at $1.83 per BOE, Questar at $3.98 and Western Gas Resources at $4.13. All three firms focus on gas plays in the Rockies, particularly in Utah and Wyoming. The median finding cost including both drilling and reserve revisions rose to $20.27 per BOE versus $5.58 in 2002 and $4.52 in 2000. Production Annual production in 2004 for the 50 independents studied ranged from Devon Energy Corp.'s high of 250.5 million BOE to a low of 2.4 million for PetroQuest Energy Inc. Ultra's production soared 71% to 8.2 million. Although many E&P companies grew their production by making large acquisitions and pursuing large-scale development-drilling programs, a few stood out for a high percentage of exploratory drilling. The three companies with the highest percentage of total costs incurred aimed at exploration were medium-size independents who focus offshore: Energy Partners Ltd. came in at 58% of its budget devoted to wildcatting, Spinnaker Exploration, 57%; and Remington Oil and Gas, 51%. Companies spending less than 10% of their budget on exploration last year included Occidental Petroleum, 9%; Kerr-McGee, 7%; Chesapeake Energy, 5%; Range Resources and Plains E&P, 4% each; Energen Corp. and Patina Oil & Gas, 1% each; and Equitable Resources, less than 1%. Reserve replacement Reserve-replacement success in 2004 from drilling alone (not counting reserve revisions and acquisitions) ranged from a high of 1,295% for Ultra Petroleum to 3% for Pioneer Natural Resources Co. Last year, Ultra grew its proved reserves 42% to 1.5 trillion cubic feet equivalent. Pioneer, meanwhile, was deploying capital for infrastructure in the Gulf of Mexico and saw its production grow to 68.7 million BOE from 56.5 million the previous year as several new fields came onstream. Other outstanding drilling results were posted by Questar Corp. at 403%, Southwestern Energy Corp. at 377% and newly public Bill Barrett Corp. at 310%. Reserve additions from deal-making vary greatly from year to year. In 2004, if acquisition results are added to drilling performance, the top performer was Plains E&P, which replaced 823% of reserves from acquisitions. Plains acquired companies and assets during the year. Although Chesapeake Energy made more deals and spent more money than most on deal-making, it was starting out from a larger base number, so its reserve-replacement rate from acquisitions was 314%, still a very impressive number.

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