Reserves don't matter as much as the cost of getting the oil out the ground

Oil and gas reserves don't much matter any more. You arrive at that conclusion after listening to Royal Dutch Shell's strategy presentation in which the company this week finally allowed investors to have a look at the gauge on its fuel tank.

Shell caused an uproar in late January when it failed to publish its reserve numbers at the same time as its 2007 earnings, and said it would follow Exxon Mobil's example and delay publication until it filed its 20-F statement to the U.S. Securities and Exchange Commission. Some feared that the delay masked a problem (another case of disappearing barrels, whispered the doubters) but there was no problem. Shell topped up its tank and added a little bit more.

Reserves on their own don't matter. What matters is the cost of getting the reserves. Shell's investment per barrel of oil and gas has increased fourfold in just three years, a period during which the oil multinational's output has not increased. The company displayed another chart showing the average spending of the big oil companies. Per barrel of hydrocarbons, spending rates were pretty static during the 1990s at between $5 (U.S.) and $6 a barrel. In 2003, the rate of investment began to escalate and is now shooting higher, rising at an alarming pace. Last year, the average investment per barrel was just shy of $15.

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