With proved reserve life of 13 and 23 years respectively, these majors have what it takes to flourish for the long haul…
They say age is nothing but a number. But in the oil and gas industry, age has extraordinary implications.
Oil formations take hundreds of millions of years to develop… but once the fuel is burned up, it’s gone for good.
So for investors in the energy sector, one of the key fundamentals that they consider is longevity. And that ties in directly with reserve life.
Investors don’t simply look at how much oil and gas is available to these companies, the volume of fuel also helps determine the reserve life.
That is, the reserves are an indicator of how long the producers have to keep extracting at their current levels without making any new discoveries.
In that regard, there’s only a small circle of oil and gas companies that can boast both large reserves and long reserve life.
Here are two of them that deserve some particular attention.
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When it comes to size and global reach, France’s Total S.A. (NYSE:TOT) is up there with some of the biggest in the world.
Total has operations in over 130 countries and on every continent except Antarctica, ranging from exploration to refining.
With all their projects combined, they average 2.3 Mboe/day of oil and gas production.
The location of its reserves naturally follow with its operations – and just like the diversification of one’s stock portfolio, this provides Total with a certain level of stability.
As a result, they’ve been successful in growing their reserve base over the past few years.
Between 2008 and 2013, Total’s proved reserves jumped from 10.5 billion to 11.5 billion barrels of oil equivalent.
Based on their daily output, this would give the Company a reserve life of 13 years.
So far in 2014, Total has seen a slight dip in business, primarily in Europe where the economy is still fragile.
Declining oil and gas output due to poor weather along with lower margins from European refineries sliced about 10% of the Company’s net profits from a year prior.
That said, Total has been actively pursuing a cost reduction plan, and its cash flow from operations has improved 9% to $5.3 billion in the same span.
For its improved operations, Total’s shares have soared nearly 48% in just the last 11 months.
Another company with a long shelf life is Canada’s Suncor Energy (NYSE:SU).
Whereas Total may have a vast global presence, the majority of Suncor’s assets are concentrated in the Athabasca oil sands.
The Athabasca oil sands, located in the province of Alberta, are one of the richest unconventional oil formations in North America, with an estimated 1.7 trillion barrels of bitumen in-place.
While Suncor’s daily output of 538,000 barrels is substantially lower than Total’s, and bitumen is typically more expensive to extract, the company still has a significant reserve base.
As the largest Canadian oil company by market value, Suncor has proved reserves of approximately 4.8 billion boe if you consider its other global assets.
Its current daily production would give it a reserve life of 23 years…a decade more than Total.
In the first quarter of 2014, both operating profit of $1.73 billion ($1.22 a share) and cash flow from operations of $2.88 billion were quarterly records for the Company.
One factor that could significantly increase Suncor’s value is the construction of a major pipeline, such as Keystone XL and Enbridge’s Northern Gateway.
According to a report by the Canadian Association of Petroleum Producers (CAPP), production in the oil sands is forecast to almost triple to 5.2 million barrels a day by 2030, from 1.8 million barrels a day in 2012. Major pipelines will be needed to move that oil efficiently.
In all, investors can rest assured that both these companies will be producing tens of millions of barrels a year for a very long time.