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As the oil patch scrambles to cut ever deeper to cope with the crude-price collapse, the next aspect of the business set to take a hit is its very foundation – reserves.

Energy companies and the independent evaluators they hire are now up to their ears in data, calculating year-end oil and gas reserves, a complicated annual process that involves engineering, accounting and market-forecast wizardry.

The severe drop in oil prices will take a bite out of some of the tally for 2014, and with markets seemingly floorless, 2015 could be an exercise in contraction. At risk is the overall value of the resources in the ground, which will shrink both economically and physically as low oil persists, hampering companies' worth.

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It's most worrisome for the smaller producers that rely on bank credit for financing.

"The collapse in the oil price is not really going to change the reserve numbers dramatically. It will change the value a lot," says Nora Stewart, vice-president, engineering, at Sproule Associates Ltd., a global petroleum consulting firm based in Calgary.

Most forecasts show recovery in West Texas Intermediate crude prices from current depths below $50 (U.S.) a barrel. The big question is when, and it appears that not even the Organization of Petroleum Exporting Countries knows the answer.

Sproule knocked $10 off its month-old 2015 projection for WTI crude on Monday, pegging it at $65 a barrel, a 30-per-cent drop from 2014. The firm sees an $80-a-barrel average for 2016, suggesting a gradual rebound.

This year, pretty much every energy company has cut its budget to match shrinking expectations for cash flow, some more than once. Some have taken the drastic step of chopping their dividends. The latest to capitulate to the weakening oil-price outlook is Crescent Point Energy Corp., which reduced spending by 28 per cent from 2014, though it maintained its monthly payout.

It's all taken its toll on the energy sector. Since June, the Toronto Stock Exchange's oil group has lost 38 per cent of its market value.

Industry-wide spending cuts spell a whole lot less drilling this year, and by extension, less replacement of oil and gas produced with additional reserves. It's the circle of life, oil-patch style.

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"So, come year-end 2015, the reserves may be down as a result of reduced capital budgets," Ms. Stewart said.

Jurisdiction plays a role in the value of reserves. For companies listed on Canadian exchanges solely, reserves are calculated using oil and gas price forecasts, so that will impact reserve values for year-end 2014 more than those regulated by the U.S. Securities and Exchange Commission. Under SEC rules, reserves are evaluated using the average of prices on the first day of each of the previous 12 months.

Reserves are classified as "proved," which include both developed, or producing, and undeveloped oil and gas; and "probable," in which recovery of the resources is less certain.

Look for some of the probable reserves to drop out of latter category if it is deemed that they will not get pumped to the surface in the next five years as a result of a drop in spending due to sputtering crude markets.

All of this will particularly pressure the smaller companies that tap bank lending that is backed by reserve values. Their executives are fretting as they watch their borrowing bases shrink, says Barry Munro, oil and gas leader at EY Canada.

Some Canadian exploration and production companies have recently been active in seeking to access the bond market instead, as a way to make reserve calculations less crucial to borrowing, Mr. Munro said. But not all have gone that route.

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"Reserves can be the same with a dramatically different value to those reserves, and it's the value which determines how much debt they can carry, or the banks will let them carry," Ms. Stewart said. "It has been extremely volatile and I don't think most companies had anticipated it would fall this low."

It gives falling oil prices yet another place to inflict pain.

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