(Reuters) Chevron's oil and gas reserves have fallen to the lowest point in at least a decade, highlighting the importance of the U.S. major's planned acquisition of oil producer Hess that has stalled due to a court battle with ExxonMobil.
Reserve replacement is one of the key metrics for investors in energy companies, as it gives a sense of how much oil and gas the companies could produce and for how long.
If Chevron closes the Hess acquisition, it would gain a stake in the lucrative Guyana oilfields that are operated by Chevron's rival, ExxonMobil.
ExxonMobil and CNOOC, the other minority partner in the Guyana field, have challenged Chevron's bid for Hess in court, saying that they have first right of refusal on Hess's equity in the project.
Chevron's reserves, or the amount of oil and gas that it can potentially extract, declined from 11.1 billion barrels of oil equivalent in 2023 to 9.8 billion by the end of 2024. The reserves also declined in part due to sales of acreage.
The low rate of reserve replacement raises "red flags," said Paul Cheng, an analyst with Scotiabank, highlighting concerns about the company's longer-term prospects.
Chevron said its reserve replacement ratio over the past 10-year period was 88%.
The company's organic reserve replacement ratio, a metric that measures how much new oil and gas was added to the reserves compared to the amount it produced and excludes acquisitions and sales, was 45%. A ratio of 100% or more means the company is replacing its reserves at the same rate that it depletes them.
Cheng said the company's replacement ratio has been below the breakeven requirement over the past three years. Scotiabank maintains a sector outperform rating for Chevron.
Chevron declined to comment. During the fourth quarter earnings call, CEO Mike Wirth said the company was focused on developing high-quality oil and gas assets, including in the Gulf of Mexico.
The acquisition of Hess, a $53 billion deal struck in October 2023, could improve Chevron's prospects. It would grant the company a 30% stake in more than 11 billion barrels of oil equivalent of discovered recoverable resource in Guyana, the company said when it announced the deal.
"The combined company is expected to have resource inventory depth into the next decade – much further than we can usually see with confidence in our business," Wirth said in October.
Exxon has not yet reported its replacement ratio for 2024, but the No. 1 U.S. oil producer also struggled to replace its reserves in 2023 and 2022, which may have contributed to its decision to buy oil and gas producer Pioneer Natural Resources, Cheng said. Exxon declined to comment.
The Pioneer acquisition last year made Exxon the largest oil producer in the Permian Basin, the biggest U.S. oil field.
UK-based oil company Shell and French oil major TotalEnergies both have an average reserve replacement ratio over the past three years of more than 100%.
