Reserve-Replacement Ratio

AAA

DEFINITION of 'Reserve-Replacement Ratio'

A metric used by investors to judge the operating performance of an oil and gas exploration and production company. The reserve-replacement 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 long-term; otherwise, it will eventually run out of oil.

INVESTOPEDIA EXPLAINS 'Reserve-Replacement Ratio'

The reserve-replacement 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 reserve-replacement ratio achieved through organic replacement is considered better than a high reserve-replacement ratio achieved through purchasing proved reserves.

RELATED TERMS
  1. Enhanced Oil Recovery - EOR

    Enhanced oil recovery (EOR) is the process of obtaining stranded ...
  2. Estimated Ultimate Recovery - EUR

    A production method commonly used in the oil and gas industry. ...
  3. Rig Utilization Rate

    A ratio used in the oil services industry that measures the amount ...
  4. Energy Sector

    A category of stocks that relate to producing or supplying energy. ...
  5. Peak Oil

    A hypothetical date referring to the world's peak crude oil production, ...
  6. Finance

    The science that describes the management, creation and study ...
RELATED FAQS
  1. What is the difference between a simple random sample and a stratified random sample?

    Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >>
  2. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  3. What is the difference between the standard error of means and standard deviation?

    The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >>
  4. What level of correlation among investments will guarantee market returns but have ...

    The efficient frontier set forth by modern portfolio theory (MPT) can provide an estimate of an optimal portfolio that allows ... Read Full Answer >>
  5. What is a "non linear" exposure in Value at Risk (VaR)?

    The value at risk (VaR) is a statistical risk management technique that determines the amount of financial risk associated ... Read Full Answer >>
  6. If oil producers run out of room to store oil, will the price of gasoline plummet?

    The price of gasoline would plummet if oil producers run out of room to store oil. However, running out of room to store ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Oil: A Big Investment With Big Tax Breaks

    Oil and gas investments can provide unmatched deduction potential for accredited investors.
  2. Active Trading

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  3. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  4. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  5. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  6. Active Trading

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  7. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  8. Fundamental Analysis

    Understanding the Simple Random Sample

    A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen.
  9. Investing Basics

    Explaining the Spot Rate

    The spot rate is the immediate purchase price posted on exchanges for purchasing commodities, currency and securities.
  10. Economics

    What is Systematic Sampling?

    Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center