18-02-05 Bowing to pressure from the Securities and Exchange Commission, ExxonMobil revised its policy for reporting oil reserves, a shift that dramatically affected its official reserves tally.
Under the new policy, which incorporates year-end commodity prices, ExxonMobil replaced 83 % of its production with new reserves, compared with the 112 % it would have reported under the old policy, which used a long-term price projection. The benchmark illustrates a company's success in developing new oil and gas assets to offset the amount exhausted in the previous year.

ExxonMobil characterized the shift as an accounting matter and said it successfully replaced production for the 11th straight year.
"This represents the eleventh consecutive year of greater than 100 % reserve replacement, demonstrating the outstanding capability of our Upstream organization and the Corporation's commitment to long-term growth," ExxonMobil CEO Lee Raymond said.

Many energy companies have criticized the SEC's year-end pricing rule for giving too much weight to the price on a single day, Dec. 31. This stipulation, according to critics, can lead to wide swings in reportable reserves, distorting the company's assets.
Although the year-end rule is not new, the SEC stepped up its enforcement of this and other oil-reserves rules after Shell's large reserves downgrade in January 2004. Since that time, BP and ChevronTexaco have also adjusted their policies. Of the large oil companies, ExxonMobil has resisted changing policy the most. Instead of following the year-end rule, ExxonMobil used "a long-term view of what we think the price level will be at the time the reserve estimate is made," the company said previously.

Even as it assented to the SEC's wishes, ExxonMobil made clear that it disagreed with the agency.
"The use of prices from a single day is not relevant to the investment decisions made by the corporation and annual variations in reserves based on such year-end prices are not of consequence," ExxonMobil. ExxonMobil's report comes amid the oil industry's oft-discussed struggle to find and develop major projects to replace declining output in North America and Europe. The biggest problem is that many of the best Middle Eastern oilfields are shut out to private companies. The industry has also encountered resistance in countries that have allowed some foreign development, such as Russia and Venezuela.

On the positive side for the industry, oil companies are expected to boost their quantity of natural gas reserves with the advent of a number of major projects. Until recently, oil companies didn't develop major natural gas fields in Nigeria, Indonesia and elsewhere because there was no available market.
However, with today's high prices, oil companies are developing more "stranded gas" from these sites into imports in the form of LNG and gas-to-liquids. New LNG reserves represented a hefty percentage of the new reserves ExxonMobil reported. New natural gas reserves additions in Qatar totalled 1.7 bn boe, nearly 8 % of the company's 22.2 bn total reserves. Overall, ExxonMobil reported 14 years of reserve life, among the longest in the industry.

The year-end price change most affected ExxonMobil's heavy-oil holdings in Canada, ExxonMobil said. As with other companies, ExxonMobil's reserves in Canada fell due to a short-term plunge in the value of the oil at the end of 2004.
As a result, ExxonMobil was forced to remove 500 mm barrels of oil reserves. Prices for the heavy oil have since recovered somewhat.