What is the 'ReserveReplacement Ratio'
The reservereplacement ratio is a metric used by investors to judge the operating performance of an oil and gas exploration and production company. The reservereplacement ratio measures the amount of proved reserves added to a company's reserve base during the year relative to the amount of oil and gas produced. During stable demand condition environments a company's reserve replacement ratio must be at least 100% for the company to stay in business longterm; otherwise, it will eventually run out of oil.
BREAKING DOWN 'ReserveReplacement Ratio'
The reservereplacement ratio is just one method investors should use to get an accurate picture of how well an oil company is performing. This ratio should only be looked at in the context of other operating metrics. A high reservereplacement ratio achieved through organic replacement is considered better than a high reservereplacement ratio achieved through purchasing proved reserves.

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