Reserve replacements last year, excluding acquisitions and divestitures, were 91%, a further fall on 2005’s 92% replacement rate.

At the same time, the majors’ exploration and development costs rose to $US13.63 per barrel of oil equivalent, up 28% from 2005, according to the report.

The report said increases in exploration and development costs were largely driven by the need to extract oil from more technically challenging areas, such as deeper waters and rugged terrain.

“Inflationary pressures stemming from a tight market for deepwater rigs, labour and materials also took a toll,” Bear Stearns said.

But the report said it expected current exploration efforts would pay off and within five to 10 years, reserves replacement levels would return to the 100-110% range.