Reserve Replacement Returns to the Top of the Upstream Agenda to Support an Orderly Energy Transition

• As Many as 80% of the Largest National and International Oil Companies Face Significant Production Decline by 2040
• Existing Output Must Be Replaced to Maintain Energy Affordability and Security and Support an Orderly Energy Transition
• Technology Could Be One of the Game Changers for Portfolio Longevity

BOSTON-Energy sustainability, affordability, and security, the elements of the energy trilemma, are increasingly threatened by thinning oil and gas investment pipelines, together with stickier than expected oil and gas demand, and geopolitical events creating uncertainty over the supply pipeline. Up to 80% of the largest national and international oil companies in the world will face production declines by 2040. The majority are likely to see a 20% to 50% decline, while a subset face a fall in production of as much as 60% or more.

The latest report from Boston Consulting Group (BCG) and the Center for Energy Impact, Securing the Oil and Gas Resources of the Future, released today, identifies the solutions to this longevity challenge, and how they will reshape the competitive landscape in the industry.

"Following a decade of capital discipline, selective upstream investment is needed to replace existing output as it is depleted," said Rebecca Fitz, a BCG partner and director, and founding member of BCG's Center for Energy Impact. "Without this, an orderly energy transition could be at risk from price volatility, energy shortages, and reliance on higher-emission sources."

Exploration Is Not the Only Route

Exploration can solve some portfolio longevity issues but won't work for all, and is unlikely to be the main source of new reserves through 2040.

Returns from exploration are highly concentrated, however. BCG analysis shows that despite similar levels of spending, top performers generate significantly more value than lower-performing peers through careful capital exposure management and subsurface skills. Options include phased development, choosing targets adjacent to infrastructure, and predevelopment farm-downs that limit capital exposure.

Technology Can Be a Game Changer

Companies with genuine technical depth can create value in two ways: extracting more from the resources they already hold, and gaining access to resources that would otherwise stay out of reach. Some of the world's largest holders of conventional reservoirs recover less than half the average for their peer group. Breakthroughs in recovery technologies, particularly in shale resources, could materially expand available reserves and meet future needs.

Beyond improving recovery, technology is becoming a competitive differentiator. Forty-five percent of the remaining global upstream liquids' net present value¹ sits in states with restricted foreign access or states accessed via select partnerships. The same is true for 35% of the cumulative gas production¹. In many of these resource-rich markets, governments are increasingly seeking partners that bring technical expertise and development capability, not just capital. For leading operators, technology could unlock both longer-lasting portfolios and access to some of the world's most attractive remaining resources.

"Portfolio longevity is becoming a key factor in how oil and gas companies are valued," Fitz said. "Companies that can extend the life of their portfolios through disciplined investment and technology will be better positioned to compete at the current stage of the energy transition."

¹ Top 40 Countries, 2025-2040

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