What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community.

Reserve replacement ratio

The reserve replacement ratio is the amount of new reserves found compared to the amount of oil produced.

Expanded Definition

Exploration and production companies use this to measure how new discoveries exceed (or fall short of) production. Let's say that for every barrel produced, a company wants to increase reserves by 1.5 (replacing the barrel produced plus another half a barrel). If the ratio falls below 1 : 1, then the company is using up its reserves. Percentages are also used to express this; if the number falls below 100%, then the company is using up its reserves.