As shale plays mature, it is becoming more important to invest in oil exploration, Kimmeridge argues in a new white paper, “Shale’s Golden Years, Part II: The Cost of Aging.” The company explains that producers’ reserve replacement rates have not kept pace with production.

“On a three-year basis, oil reserve replacement has remained below 100% for the last seven years. The industry has recently been adding roughly 95 barrels of proved developed oil reserves for every 100 barrels of oil it produces,” Kimmeridge writes. “Gas has moved in the opposite direction, with reserve replacement running above 120% over the same period.”

The firm typically looks at reserve replacement for the past three years to mitigate SEC price deck revisions and other annual booking noise that can distort any single year.

Throughout the white paper, Kimmeridge emphasizes that it’s important to evaluate individual commodities rather collapsing oil, natural gas liquids, and natural gas into one number. “An oil barrel depleted and replaced with its 6:1 energy equivalent in gas may satisfy an energy-based reserve replacement calculation, but it does not replace the same revenue-generating capacity,” it observes.

Among oil-weighted companies, which Kimmeridge defines as ones that generate more than 50% of their revenue from oil, oil accounted for only 41% of the reserve additions made in 2023, 2024 and 2025. That compares with a production stream that is 50% oil. “The reserve base being added today is therefore gassier than the production it is replacing,” Kimmeridge assesses.

“Much of that shift is showing up in NGLs, which are liquids at the point of sale but are produced as part of the gas stream and separated from the raw gas after production. Economically, the industry is replacing higher-value crude oil with a greater proportion of gas and NGLs,” it concludes.

Low Investment

Kimmeridge is not the only market analyst to point out the decline in exploration. In an email coinciding with the release of its 2026 Oilfield Market Report, Speers & Associates said that spending on exploration is a three-decade low point. “In today’s dollars, 1999 spending on geophysical equipment and services was about $9 billion, and today, E&P spends not quite $7 billion,” it states.

“Adjusted for inflation, E&P companies spent $25 billion in 2013 looking for new oil and gas around the world but slashed that to $10 billion in four years and to $6 billion after COVID, where spending has languished ever since,” Speers & Associates continues. “This is a result of investors largely abandoning the oil and gas sector after 2014, convinced that alternative fuels would replace hydrocarbons within 10 or so years, which clearly isn’t happening and won’t happen in the foreseeable future.”

For much of the past decade, Kimmeridge says it made sense to limit exploration. “The shale resource had already been discovered and companies had years of delineated inventory in front of them,” it explains. “Exploration expense across our public company universe fell from approximately $14 billion in 2018 to under $5 billion in 2025.

“The resource data now argue for a different balance,” it says. “Oil reserve replacement has averaged ~90% over the last five years, oil recovery per foot has deteriorated, and the reserve additions of oil-weighted producers are becoming progressively gassier. M&A can transfer existing oil inventory between owners and improve how it is developed, but it does not expand the aggregate U.S. oil resource base.”

Because operators tend to prioritize the best rock, finding new reserves will gradually become more difficult. “If the industry must spend more capital to replace fewer oil barrels, its supply response to higher prices should weaken over time. All else equal, that is a structural tailwind for WTI,” Kimmeridge says.

Technology can help compensate for lower rock quality. “New exploration may look different from the exploration models of the prior cycle,” the firm muses. “It may involve using artificial intelligence to analyze basin edges, deeper intervals, overlooked formations, and new conventional and unconventional concepts that can add economic oil inventory.”

Gas Players

Unlike their oily counterparts, gas-focused producers have sustained a reserve replacement above 100% thanks in part to successful exploration programs.

“Since 2019, the cumulative reserve replacement rate for oil in the industry has been 95%, indicating that reserves are not being fully replaced. In contrast, gas reserves have been replacing at a healthy rate of 126% over the same period,” Kimmeridge reports.

The firm says it picked 2019 as the starting point to “capture a pre-COVID baseline, before the pandemic distorted commodity prices, activity levels, and reserve revisions.”

Associated gas plays a major role in the higher reserve replacement rate. Last year, oil-focused players accounted for 57% of new gas reserves among the companies Kimmeridge tracks.

“That creates a supply environment in which the molecule itself is abundant. For an independent gas producer, competitive advantage should therefore extend beyond finding gas cheaply. The business should be integrated far enough downstream to capture value above Henry Hub through firm transportation, premium market access, LNG-linked sales, power relationships, midstream ownership, and stronger marketing and trading capabilities where those strategies make economic sense,” Kimmeridge advises.

“The objective is not necessarily to own every asset between the wellhead and the end customer. It is to control enough of the route to market that the producer is not forced to sell the molecule at the point where it is most abundant,” the firm clarifies. “Associated gas makes that need more acute because part of the supply base can continue growing on oil economics even when Henry Hub is weak.”

Consolidation

Whether producers focus on gas or oil, Kimmeridge sees plenty of opportunities for continued consolidation, which has already helped many companies minimize costs.

“Scale has lowered corporate costs, improved purchasing power with service providers, and increased leverage with midstream providers. Where operations overlap, combinations can also reduce costs through shared infrastructure, enable longer laterals, and transfer operating knowledge around optimal development practices across a larger asset base,” Kimmeridge relates.

When paired with ongoing improvements to drilling and completion techniques, consolidation can have a significant impact. According to Kimeridge, selling, general and administrative expenses for each barrel of oil equivalent have fallen 48% since 2018. Interest expense per boe is just behind SG&A at 46%.

“We continue to support combinations with clear industrial logic: overlapping acreage that enables longer laterals, shared infrastructure, development programs that can be sequenced more efficiently, and corporate platforms where duplicated costs can be removed,” Kimmeridge states.

However, the firm cautions that the benefits of consolidation can be time sensitive. “Once fragmented acreage is developed with short laterals, the chance to combine it into a more efficient development block can be permanently lost,” it explains.

The full paper illustrates many of Kimmeridge’s observations with graphs and validates its conclusions by checking them against other metrics, including the three-year, value-weighted recycle ratio. You can download it at Shale’s Golden Years, Part II: The Cost of Aging.