* Oil and gas reserves life falls below 12 years
* Reserves life lowest in at least 20 years
* Companies focusing more on quality of reserves
* Graphic: Oil Majors reserves life - sector (https://tmsnrt.rs/2vAiFLX?eikon=true)
By Ron Bousso
LONDON, May 16 (Reuters) - A decade ago, the news that theworld's top oil and gas companies had less than 12 years ofproduction left in their reserves might have caused a panickedsell-off in their shares.
But as consumers try to move away from fossil fuels tocleaner and cheaper energy sources, investors and executives sayreserve size is no longer the gold standard for measuring thevalue and health of a company.
The cost of developing existing reserves and the amount ofcarbon those reserves produce has now become more important,they say. This is leading to a profound shift in companystrategies.
"The quality of reserves and the commercial viability ofreserves has eclipsed the quantity of reserves by far in recentyears," said Adi Karev, Global Leader for Oil and Gas at EY.
The sector is emerging from one of its longest and deepestdownturns after an oil price slump that started in 2014.
The largest publicly-traded oil companies -- Exxon Mobil,Royal Dutch Shell, Chevron, ConocoPhillips, France's Total, BP,Equinor (formerly Statoil) and Italy's Eni -- have adapted. Theysaved money by cutting jobs and increasing technology spendingand now make more money with oil at $60 a barrel than they didat $100.
But they also cut spending on exploration for new resourcesand development of new fields. This led to a decline inreserves.
An analysis by Reuters and Guinness Asset Management of theannual reports of those eight companies shows that the size oftheir oil and gas reserves, when added together, fell to 91billion barrels in 2017. That was the lowest since the sameamount in 2005.
The reserves of Exxon Mobil, the largest company, shrank by16 percent since the slump began in 2014. Shell's reserves fell6.5 percent since then despite the $54 billion acquisition of BGGroup in 2016.
BP and Chevron's oil and gas reserves increased by a small 5percent since 2014. Eni was the only one to significantly boostits reserves by over 20 percent thanks to the discovery of thegiant Zohr gas field off the coast of Egypt.
The cumulative reserve life - the number of years a companycan sustain its current production levels with existing reserves- of the eight companies fell to 11.7 years in 2017. That wasthe lowest level in at least 20 years although that drop is alsothe result of a sharp increase in production. Reuters does haveaccess to data going back beyond 1998.
Exxon's reserves life shrank from 17 years in 2014 to 15 in2017. Eni's from 10.6 to 10.1 years despite its discoveries.Shell slipped from 12 to 9 years over the period.
"There is clear deterioration (in reserves) and this will bea problem in time," according to Jonathan Waghorn, manager ofthe energy fund at Guinness Asset Management.
But for now, "10-12 year's reserve life should be fine, soit is not a materially important component between the Majors."
"THE BEST BARRELS"
With electric vehicles on the ascent and a peak for fueldemand on the horizon, the focus on the reserves is shifting tothe quality of the reserves rather than the quantity
"Some reserves are more efficient than others," EldarSaetre, chief executive officer of Norwegian oil giant Equinortold Reuters.
"At some point we see a shrinking oil and gas industry, whenthat will be I do not know, but then it is really important thatthe best barrels come in and that will be increasingly acompetitive factor."
Some companies are already changing strategies to adapt tothe new focus.
Oil prices are not expected to rise sharply in the long-termand governments are seeking to reduce pollution and greenhousegas emissions. This means firms are adjusting by settingceilings for the cost of projects, often below $35 a barrel. Oilreached a $80 a barrel this month, the highest since late 2014.
Crude oil and natural gas have different grades and the costof pumping them can vary hugely. Saudi Arabia's oil is easierand therefore cheaper to extract than Angola's complex deepwaterwells.
Canada's oil sands have become less attractive due to theirhigh cost of extraction and high carbon intensity. Exxon wrotedown a large part of its Canadian oil reserves in 2017. Itslargest rival, Shell, has sold most of its Canadian assets inrecent years.
North American shale which has emerged over the past decadecan be developed relatively quickly and at low cost, in contrastto multi-billion dollar deepwater projects that take years todevelop.
The Permian basin in Texas, the heartland of the shale oilboom in recent years, saw production costs drop sharply to aslow as $30 a barrel.
Exxon and U.S. rival Chevron have both acquired largeacreage in the Permian in recent years. Shell is also expandingin U.S. shale.
The Gulf of Mexico also has low extraction costs because ithas large reservoirs of oil and some infrastructure is alreadylocated there such as services companies and onshore bases.
Statoil and Total have bought exploration acreage in theU.S. Gulf of Mexico in recent months.
Brazil's pre-salt reserves also have low costs as there arehuge reservoirs and also some existing infrastructure. All eightcompanies are there and several have recently sharply increasedtheir production in the basin.
"We are now getting to the point that the focus onefficiencies and producing reserves at a low level is whatinvestors expect," Karev said.
(Additional reporting by Shadia Nasralla in London and StephenJewkes in Milan; Editing by Anna Willard)
