Petroleum producers are currently engaged in significant expenditure towards exploration and development in various oil and gas plays in the United States and Canada. Does such expenditure lead to better corporate results, particularly reserves and production, or are there other factors which influence corporate results?

The methodology for analysis of efficiency of capital expenditure was developed, based on the correlation between different types of exploration expenditure, including land, drilling and seismic and producer's reserves and production. A model was developed to quantitatively assess exploration and development expenditure, production, and reserves for various producers for different oil and gas plays. The model employs a number of Key Performance Indicators (KPIs) such as finding and development costs with and without acquisitions, reserves life, reinvestment, and others.

The methodology was applied to a comprehensive study of finding and development expenditure in Western Canada. The study did not find a correlation between exploration and development expenditure and company production and reserves additions for WCSB as a whole. However, a correlation was found between expenditure of the companies belonging to the particular group and production within a particular strategy. The results imply that company results are most sensitive to the high level business decisions rather than overall investment in exploration and development.

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