The cost of doing business in the oil patch keeps rising. For 46 publicly traded exploration and production companies tracked by Howard Weil, all-sources finding and development (F&D) costs last year surpassed the five-year average reported for 1999 to 2003, according to a study done by the New Orleans-based investment-banking firm. "All-sources" is defined as total costs incurred for finding, development and acquisition spending, divided by total reserve additions. The five-year average was $7.38 per barrel of oil equivalent (BOE), but the actual averages E&P companies reported ranged widely. The low was $1.49 per BOE by Houston-based Ultra Petroleum, which has been growing gas reserves rapidly in the Pinedale Anticline in Wyoming, where its wells are averaging 7.4 billion cubic feet (Bcf) of gas. All of Ultra's reserve growth has come through the drillbit, whereas many of the other 45 companies have used both drilling and acquisitions to boost their reserves. At the other end of the scale, the five-year high for all-sources finding and development cost was $15.49 per BOE, recorded by Houston-based Spinnaker Exploration, which devotes itself to expensive offshore Gulf of Mexico wildcatting. Among the group, the five-year average percentage of total costs incurred devoted to exploration alone ranged from zero for California-based Berry Petroleum and Fort Worth-based XTO Energy, and just 1% for Denver's Patina Oil & Gas, to as much as 52% for Mississippi-based Callon Petroleum, which also has a deepwater Gulf focus. The median percentage of total costs incurred among the 26 companies for exploration was 19% for the five-year period, Howard Weil says. The most active exploration spender during the period was Callon (52% of its total spending). Others that spent a large percentage of dollars on exploration were Ultra Petroleum, 46%; Spinnaker Exploration, 51%; Remington Oil & Gas, 46%; and Brigham Exploration, 45%. In general, companies drilling offshore or internationally, or that are dedicated to exploration as a core activity, incur the largest drilling costs. Many of the companies that are focused in the Rocky Mountain region and drill for gas are reporting the best reserve-replacement results at the same time they are reporting the lowest costs. E&P companies showing the highest concentration of acquisition spending in their total costs incurred, for a five-year average, were the most active, high-profile buyers of reserves. These included Westport Resources with a five-year average of 67%; Devon Energy, 65%; Mission Resources, 59%; Patina, 56%; Chesapeake Energy and XTO Energy, both 54%; and Apache, 53%. All-sources reserve-replacement percentages varied widely, with Ultra again No. 1 in results. The company's five-year average replacement rate was a stunning 1,658% because of its active drilling program in Wyoming, and because it began 1999 with zero. The latter is somewhat misleading in that the company shifted its fiscal year from June 30 to December 31 in 1999. The worst performer among the 46 companies was Fort Worth-based Range Resources, which still had a very respectable average replacement rate of 126% for the five years. The mean reserve-replacement rate for the 46 companies was 297% for the five years and 239% in 2003, Howard Weil reports. Which companies might have strong reserve-replacement opportunities ahead, based solely on their acreage position? Kerr-McGee Corp. comes out on top with 53.4 million net acres. (After the recently announced acquisition of Westport Resources closes, it will have another 1.5 million net acres in its portfolio.) Other top acreage-holders include Devon Energy with 31.1 million net acres, Anadarko Petroleum, 30.7 million; and Burlington Resources, 26.3 million. If having a high percentage of proved undeveloped reserves (PUDs) is a measure of opportunity for reserve replacement, then this company has the most work to do: Spinnaker Exploration has 68% of its year-end 2003 reserves in the PUD category. Ultra Petroleum has 65%. Both Western Gas Resources and Callon Petroleum have 58%. Both Unocal and Kerr-McGee have 50%. -Leslie Haines