U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Proved Reserves, 2009

Domestic proved reserves¹ of oil and natural gas increased significantly in 2009. U.S. natural gas proved reserves² -estimated as "wet" gas which includes natural gas plant liquids-increased by 11 percent in 2009 to 284 trillion cubic feet (Tcf). This is their highest level since 1971, despite an approximate one-third decline in the prices used to assess economic viability for 2009 reserves as compared to the prices used in 2008. U.S. crude oil plus lease condensate proved reserves rose 9 percent to 22.3 billion barrels in 2009, regaining 1.8 billion barrels of the 2.3 billion barrel decline in 2008. These increases demonstrate the possibility of an expanding role for domestic natural gas and crude oil in meeting both current and projected U.S. energy demands.

Shale gas development in Louisiana, Arkansas, Texas, Oklahoma, and Pennsylvania drove the increase in proved reserves of natural gas. Louisiana led the nation in wet natural gas proved reserves additions with a 77 percent net increase of 9.2 Tcf owing primarily to development of the Haynesville shale. Both Arkansas (Fayetteville shale) and Pennsylvania (Marcellus shale) nearly doubled their reserves with net increases of 5.2 Tcf and 3.4 Tcf respectively. Shale development in Texas and Oklahoma wasn't far behind, giving these two States proved reserves increases of 3.2 Tcf and 2.1 Tcf. These increases occurred despite a decline in natural gas prices relative to those used in assessing reserves at the end of 2008. This underscores the role of more efficient and effective shale gas exploration and productive technologies such as horizontal drilling and hydraulic fracturing.

Proved reserves of oil increased in each of the five largest crude oil and lease condensate areas (Texas, the Gulf of Mexico Federal Offshore, California, Alaska, and North Dakota) in 2009. Texas had the largest proved reserves increase, 529 million barrels (11 percent), nearly all in the Permian Basin. North Dakota reported the second largest increase, 481 million barrels (83 percent), because of Bakken Formation development. A significant driver for these increases was the higher average level of 2009 crude oil prices relative to those of December 2008.

Background

The U.S. Energy Information Administration (EIA) provides annual estimates of the United States proved reserves of crude oil, natural gas, and natural gas liquids (NGL) based on filed responses to Form EIA-23, Annual Survey of Domestic Oil and Gas Reserves-an annual survey of about 1,200 domestic operators.

EIA defines proved reserves as those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserves estimates change from year to year as new discoveries are made, existing reserves are produced, and as prices and technologies change. Discoveries include new fields, identification of new reservoirs in old fields, and extensions. Extensions are reserve additions that result from additional drilling and exploration in previously discovered reservoirs. Extensions typically account for a large percentage of "discoveries" within a given year. While actual discoveries of new fields and reservoirs are important indicators of new resources, they usually account for a small percentage of reserve additions in a given year. Revisions occur primarily when operators change their estimates of what they will be able to produce from the properties they operate using existing technology and prices.

Both EIA and the Securities and Exchange Commission (SEC) require oil and gas companies to provide information on their oil and gas reserves. However, there are differences between these two reporting systems. First, EIA takes a more comprehensive approach and collects information from both publicly traded and privately held companies, while the SEC reporting requirements only apply to companies with more than $10 million in assets and whose securities are held by more than 500 owners³ . Second, the SEC companies report their owned reserves while companies that report to the EIA (both public and private) report operated reserves. (Additional information and comparisons of the SEC and EIA reserves can be found in a supplemental report Top 100 Operators: Proved Reserves and Production, Operated vs. Owned, 2009.)

The proved reserves estimates reported here are based on data provided by operators on Form EIA-23 plus an adjustment to account for operators not required to supply information on proved reserves, who account for roughly five percent of estimated total proved reserves. The breakdown of proved reserves estimates provided for shale gas and coalbed methane, however, represent only information reported by operators on Form EIA-23 and do not include any adjustment to account for reserve holders not included in the survey. Therefore, the actual U.S. proved reserves and production of shale gas and coalbed methane may be slightly different than indicated in this report.

Information on production volumes included in this report may differ from other annual production data issued by EIA, which makes extensive use of State-reported annual data and uses Form EIA-23 to fill in when such data is not available. Since 1990, differences between the production volumes in this report and those that reflect annual State-reported data have generally been well under one percent.

While several factors influence proved reserves estimates, crude oil and natural gas prices are particularly important. Higher prices typically increase estimates (positive revisions) as operators consider a broader portion of the resource base economically producible, or proved. Lower prices generally reduce estimates (negative revisions) as the economically producible base contracts.

For the 2009 reporting year, companies reporting to the SEC followed updated rules for determining the prices underpinning their proved reserves estimates. The new rules, which were designed to make estimates less sensitive to price fluctuations during the year, require companies to use an average of the 12 first-day-of-the-month prices. In prior years, companies' estimates were based on the market price on the last trading day of the year. Oil and gas prices on the last day of 2008 were $44.60 per barrel and $5.63 per million Btu (MMbtu). The 12 first-day-of-the-month average oil and gas prices for 2009 were $61.08 per barrel and $3.83 per MMbtu. Oil prices increased 37 percent and gas prices declined 32 percent from 2008 to 2009 according to the SEC price rules.

Estimates of oil and wet natural gas proved reserves each rose significantly in 2009; however, the underlying drivers for each were quite different. For oil, higher prices had a major effect and proved reserves increased primarily because of revisions. The situation was quite different for wet natural gas. Lower prices made net revisions negative for 2009, but this loss was more than replaced by total discoveries, primarily extensions of shale gas fields.

Wet Natural Gas Proved Reserves (Includes Natural Gas Plant Liquids)

Total U.S. proved reserves of wet natural gas rose by 28.8 Tcf from 2008 to 2009, to 284 Tcf. That increase reflects the strongest net proved reserve additions of wet natural gas in the United States in recent years. Wet natural gas proved reserves are now at the highest level since 1971. U.S. proved reserves of natural gas have increased in every year since 1999, a trend accelerated by shale gas drilling. (Figure 1)

The Importance of Unconventional Sources

Application of new technologies can convert categories of previously uneconomic natural gas resources into proved reserves. EIA began reporting reserves data separately for coalbed methane in 1990 and for shale gas in 2008. EIA does not currently report reserves estimates for tight gas, the third category of gas sometimes categorized as unconventional.

Shale Gas

Additions associated with shale gas activity were instrumental in boosting overall wet gas proved reserves. Shale gas accounted for more than 90 percent of total net additions. Key shale States in 2009 include Arkansas (the Fayetteville Shale), Louisiana (the Haynesville), Oklahoma (the Woodford), Pennsylvania (the Marcellus), and Texas (the Barnett and Haynesville/Bossier). The 11 percent increase in U.S. proved natural gas reserves took place during a low-price environment that resulted in negative revisions to existing reserves. This underscores the major improvements in shale gas exploration and production technologies (horizontal drilling coupled with hydraulic fracturing) and efficiencies. Natural gas from shale represented 21 percent of U.S. gas reserves in 2009, with the majority coming from 6 major shale areas (see table below and Figure 2). The largest shale gas area in the U.S. remains the Barnett in Texas (Figure 3). The only shale of the six to decline in reserves in 2009 was the Antrim Shale of northern Michigan-a mature, shallow biogenic shale gas play discovered in 1986 that is no longer being developed at the same pace as the other leading shales. For a state-by-state listing of shale gas reserves and production from 2007 to 2009. For a detailed listing of 2009 shale gas proved reserves, reserves changes, and production. For a series of maps showcasing the Nation's shale gas resources for both shale plays and geologic basins.



The drop in natural gas prices began to impact development plans as operators started in late 2009 to shift investments toward the development of shale gas plays in areas with a higher yield of NGLs and crude oil (e.g. portions of the Marcellus Shale in southwest Pennsylvania and the Eagle Ford Shale of Texas). The addition of higher priced crude oil, condensate, and NGLs improves project economics.

Natural Gas Proved Reserves Changes in 2009



Total Discoveries. Total wet natural gas discoveries of 47.6 Tcf represented the seventh consecutive yearly increase and were by far the highest level of discoveries in the 33 years EIA has published proved reserves estimates. In 2009, 91 percent of total wet natural gas discoveries and 90 percent of shale gas discoveries came from extensions of existing fields. New field discoveries totaled 1.4 Tcf and new reservoir discoveries in previously discovered fields totaled 2.7 Tcf, each representing an increase over 2008, but together accounting for less than 10 percent of total discoveries.

Tight gas from the Pinedale Anticline in Wyoming added 3.6 Tcf of extensions to the U.S. total wet natural gas reserves.

Net Revisions and Other Changes. Proved reserves revisions occur primarily when operators change their estimates of what they will be able to produce from the properties they operate using existing technology and prices. These revisions reflect changing prices, changing cost structures (for example, because of innovation), and other factors. Other small changes occur when operators buy and sell properties (revaluing the proved reserves in the process), and as various adjustments are made to reconcile estimated volumes.

Net revisions of wet natural gas proved reserves for 2009 were a negative 1.9 Tcf. Negative revisions of 34.6 Tcf were the second largest in the past decade, reflecting a significant drop in the wellhead price. The average wellhead price dropped from $7.96 per thousand cubic feet (Mcf) in 2008 to $3.71 per Mcf in 2009. The 2009 negative revisions were largely offset by positive revisions of 32.7 Tcf that in part reflect an improving ability to produce unconventional gas economically.

Production. Wet natural gas produced during a year is subtracted from proved reserves. As reported on the survey, production of wet natural gas in 2009 totaled 22.5 Tcf, up 5.2 percent from 2008, marking the fourth consecutive annual increase in U.S. wet natural gas production.

Maps. Figures 5 and 6 display wet natural gas proved reserves by area for 2009 and the annual changes in reserves by area from 2008 to 2009.

Oil Proved Reserves (Crude Oil plus Condensate)

Reported oil proved reserves rose by nearly 9 percent to 22.3 billion barrels, driven by net revisions and a fourth consecutive increase in discoveries (Figure 7). The overall increase in reported oil proved reserves was the largest in the 33 years that EIA has published estimates.



The onshore Lower 48 States drove the overall increase in proved reserves. Technologies used to increase shale gas production have also boosted oil reserves, especially from the Bakken Formation in North Dakota and Montana. North Dakota recorded especially significant gains, up 83 percent over 2008, and now ranks behind only Texas, Alaska, California, and the Gulf of Mexico in proved reserves. Higher prices and drilling activity in the deepwater areas of the Gulf of Mexico Federal Offshore drove that region's second consecutive increase in oil reserves after 4 consecutive years of decline, and contributed about 13 percent of the overall national increase in 2009.

Oil Proved Reserves Changes in 2009



Total Discoveries. While net revisions were the primary driver of the overall increase in oil proved reserves in 2009, total discoveries also made a major contribution, adding 1.5 billion barrels, mostly from extensions of existing fields.

Geographically, the largest volume of total oil discoveries in 2009 came mostly from the established areas of Texas, with discoveries of 433 million barrels, and the Gulf of Mexico Federal Offshore, with 328 million barrels of total discoveries. Relative newcomer North Dakota was again a notable source of total discoveries, adding 413 million barrels. These discoveries (mostly extensions) are associated with rapid growth in reserves of the Bakken Formation and the underlying Three Forks Formation.

Net Revisions and Other Changes. Net revisions added 2.0 billion barrels to oil proved reserves in 2009, reflecting the major increase in oil prices. Under the new SEC rules, the average spot price for West Texas Intermediate (WTI) crude oil in 2009 was $61.08 per barrel, an increase of 37 percent over the year-end price in 2008 ($44.60). The low 2008 price was a major driver of near-record negative revisions and the resulting overall decline in oil proved reserves in 2008. For 2009, the impact of negative revisions on oil proved reserves was comparatively modest (less than one-third of the 2008 total).

Changes to proved oil reserves associated with buying and selling properties and adjustments were comparatively minor.

Production. In 2009, operators reported oil production of about 1.9 billion barrels, a rise of 4.6 percent from 2008. The increase was driven by production from the Gulf of Mexico Federal Offshore, particularly from deepwater fields. Deepwater production has offset steady shallow water declines, and presently accounts for 80 percent of the total Gulf of Mexico Federal Offshore oil production (up from 57 percent 5 years ago). Other key producing areas include Alaska, California, and Texas.

Maps. Figures 9 and 10 display oil proved reserves by area for 2009, and the annual changes in proved reserves by area from 2008 to 2009.

Natural Gas Liquids (NGL) Proved Reserves

In previous annual summaries, the NGL data included both lease condensate and natural gas plant liquids. Other EIA publications, however, apportion NGL reserves between crude oil and natural gas. Therefore, to improve comparability across all EIA reserves data offerings, this summary included lease condensate with crude oil (as liquids) and plant liquids were included in wet natural gas. EIA nevertheless continues to track both lease condensate and natural gas plant liquids volumes separately, and the 2009 proved reserves changes and production are summarized in this section.

Lease Condensate
U.S. lease condensate proved reserves increased from 1,433 million barrels in 2008 to 1,633 million barrels in 2009, a 14 percent increase primarily from extensions. Texas had the largest increase in lease condensate proved reserves in 2009, followed by Wyoming and Oklahoma.

U,S. lease condensate production increased 3 percent from 173 million barrels in 2008 to 178 million barrels in 2009.

Natural Gas Plant Liquids
U.S. natural gas plant liquids reserves increased from 7,842 million barrels in 2008 to 8,557 million barrels in 2009, a 9 percent increase. Texas had the largest volume and largest increase in natural gas plant liquids proved reserves in 2009, followed by Wyoming and Oklahoma.

U.S. natural gas plant liquids production increased 7 percent from 667 million barrels in 2008 to 714 million barrels in 2009.

Press release "Shale Gas Development Drives U.S. Natural Gas Proved Reserves to Highest Level Since 1971" (November 30, 2010) at:
http://www.eia.gov/neic/press/press349.html

¹ EIA defines proved reserves as those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved reserves are a small subset of recoverable resources with a probability of recovery of at least 90%.

² Natural gas, wet after lease separation, is the volume of natural gas remaining after removal of lease condensate in lease and/or field separation facilities, if any, and after exclusion of nonhydrocarbon gases where they occur in sufficient quantity to render the gas unmarketable. Natural gas plant liquids may be recovered from volumes of natural gas, wet after lease separation, at natural gas processing plants. Lease condensate is included with crude oil.

³ For 2009, 40 of the Top 100 Operators ranked by proved reserves of oil, and 28 of the Top 100 Operators ranked by wet natural gas proved reserves are privately owned companies and do not report to the SEC.