Reserve-Replacement Ratio

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.



comments powered by Disqus
Hot Definitions
  1. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  2. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  3. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  4. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
  5. Retail Sales

    An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce.
  6. Okun's Law

    The relationship between an economy's unemployment rate and its gross national product (GNP). Twentieth-century economist Arthur Okun developed this idea, which states that when unemployment falls by 1%, GNP rises by 3%. However, the law only holds true for the U.S.
Trading Center