Reserve-Replacement Ratio
Categories: Company Management
Here is, very simply, how the oil and gas business works. You find a big pool of oil under the ground. You stick a big hose down into that big mass of oil or gas. And then you suck all the oil and/or gas out until the pool is empty.
The pools of oil and gas held by a company are known as its reserve. Unless you find new reserves to drill, the firm will eventually run out of stuff to pull out of the ground. So these companies have to keep looking for new reserves.
The reserve-replacement ratio measures how well they do this job. The figure measures how well a company is adding reserves to replace the amount of product it extracts. It tracks the reserves the company adds, compared to its level of production.
