(Video) Why BP plc’s Replacement Ratio Has Rocketed

An oil company like BP (LSE: BP) (NYSE: BP.US) is usually expected to find at least as much oil over time as it produces and sells. If it fails to at least replace the oil it’s extracting then its reserves will dwindle, which obviously threatens its business, and more pertinently those lovely dividend payouts that tend to attract investors.

The figure that captures this in the company’s annual reports is known as the ‘replacement ratio’. A number below 100% tells you that reserves shrank. A figure over 100% means the company added more to reserves than it used up in production. Here, Owain Bennallack explains how BP is keeping investors happy despite the Deepwater Horizon fallout continuing to hang over the company.

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