U.S. producers managed a significant achievement in 2000: They spent lavishly, yet wisely, in replacing domestic reserves, John S. Herold Inc. says. The Norwalk, Connecticut-based research firm's 34th annual reserve replacement analysis of 50 top U.S. producers found that, despite a 150% increase in capital spending to $50.7 billion, reserve replacement costs dropped a dramatic 8% to 4.73 per barrel of oil equivalent. Reserve replacement rates set all time records, 272% of oil production and 251% of gas production. The $30-billion jump in capital spending was fueled by a $20-billion increase in proved acquisitions and a $10-billion spurt in finding and development expenditures. BP Plc was the biggest U.S. spender with $12.7 billion of outlays, according to Herold. It was followed by Phillips Petroleum Co., which spent $6.7 billion, and Anadarko Petroleum Corp., which spent $6 billion. The spending paid off, according to Nicholas D. Cacchione, a Herold senior vice president and its research director. "Domestic oil reserves for the Herold 50 grew nearly 16%, or 2.5 billion barrels, the first increase since 1997. U.S. gas reserves rose 17% to 102 trillion cubic feet," he says. Cacchione said the record reserve replacement was due not only to strong acquisition activity, but also from developing resources. The Herold 50 replaced its gas production through the drill bit for the first time in at least five years and 163% of oil production. Despite the torrent of spending, U.S. reserve replacement costs fell to a five-year low. Finding and development costs dropped to $5.17 per BOE, while proved acquisition costs slipped to $4.38. The only blemish in the results was a 15% uptick in production costs to $4.14 per BOE, due largely to higher price-sensitive production taxes. Finally, the upstream financial results of the 50 U.S. companies continued to improve, as the group posted a net profit of $25.4 billion, compared with $8.5 billion in 1999 and just $1.9 billion in 1998. -Nick Snow
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