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. Barrel Of Oil Equivalent (BOE)

    A term used to summarize the amount of energy that is equivalent ...
  5. Energy Sector

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

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

    Sectors Hit by Sanctions on North Korea

    We look at the sectors most affected by the US sanctions imposed against North Korea.
  8. Stock Analysis

    Why Investors Bailed On Halcon's Stocks

    The unexpected plunge in the oil price over the past few months sent Halcon Resources' stocks down nearly 75%.
  9. Stock Analysis

    Cheaper Solar Power Gets Some Major Backers

    While solar hasn’t lived up its potential, the times are changing. New investment has surged. For investors, this could be the time to buy solar stocks.
  10. Stock Analysis

    What Are Kinder Morgan’s Plans For Growth In 2016?

    One thing investors likely love about Kinder Morgan is its robust backlog of future projects, like growing its generous dividend by 10% per year.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center