The industry needs to do some more Doodlebugging!

In the early days of the oil industry, prospectors would pay someone to use a stick called a divining rod to walk around and hover it over the ground.

When the diving rod would shake it was an indication of oil lying underground.

This practice was known as Doodlebugging but today we call it “Exploration.”

Unfortunately, companies weren’t required to disclose their “doodlebugging” expenditures for a long time until the late 1970s when the SEC started to require disclosure around reserve accounting.

Now investors can scroll to the section that has detail about reserves changes, the discounted present value of the commodity as well as a section of the 10-Ks titled “costs incurred in oil & gas activities”

Exxon 1979 Annual Report

Now O&G companies have to tell investors what they are spending on

• Acquiring property either through acreage or M&A

• Development of reserves to produce and

• Exploring for potential new reserves

Putting it simply, there are 3 ways for an O&G company to add reserves:

1. Technology advancements that allow a company to get more recovery out of the existing acreage, i.e. shales and other enhanced oil recovery methods.

2. The T Boone Pickens model - Drill for oil on Wall Street.

3. Do it the old fashion way and go exploring for some Texas Tea.

In the 1970s this industry actually used to “explore” as shown in the chart below.