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Biggest Fossils Plan Higher Spending to Keep Adding Unburnable Reserves

Defying continuing assertions that humanity cannot safely burn all the oil already in producers’ inventories, the world’s biggest investor-owned petroleum companies plan to step up their exploration for still more in 2018, an industry analyst predicts.

“Leading oil majors are expected to increase their exploration capital expenditure by 20% to 30% next year,” John Jeffers, an oil and gas specialist with Quebec engineering giant SNC-Lavalin, told Rigzone.

Publically-traded oil companies must maintain high reserves because they are traditionally among the criteria that rating analysts use to grade their stock and creditworthiness. At some companies, CEO compensation is also tied to maintaining or building reserve inventories.

After pulling back spending in the wake of the 2014 contraction in crude prices, Jeffers told the fossil-focused energy publication, “oil majors can no longer stay away from building reserves.” And not all of it will come from new discoveries.

“Jeffers sees asset swaps among the majors, with a good level of acquisitions of reserves from medium or small holders in the industry,” the outlet writes.

And “deepwater hydrocarbon production and ultra-deepwater exploration will remain in the ground for a longer while. It is only viable at a sustained barrel price of US$60 to $65.” Jeffers doesn’t expect that point to be hit as long as OPEC shows “strong production discipline” to keep prices in the mid-$50s range.

But with day rates for renting terrestrial oil drilling rigs half of what they were a few years ago, “opportunities are there.”

A growing chorus of climate and financial experts has pointed to the shortsightedness of spending millions of dollars to add to existing oil inventories in light of the civilizational imperative to restabilize a climate put off-kilter by the burning of fossil fuels.

Scientists have calculated that roughly three-quarters of known fossil reserves already booked will need to be left in the ground in order to restabilize the climate. Estimates of the value represent by those potentially stranded assets range from US$2.3 trillion to ten times that.

And “those risks are likely to grow with time,” warns former Bank of Canada and now Bank of England Governor Mark Carney. Carney has promoted a variety of measures to expose climate risk in financial markets.

For its part, Oil Change International has called on governments to freeze all exploration that would add even more unburnable oil to inventories, and risk to investors’ portfolio.