For an oil and gas natural resource company, what is the less risky method of finding new reserves?

Acquiring another oil company with proven reserves is considered the less risky method for finding new reserves in the oil and gas industry for several reasons. This approach essentially allows the acquiring company to immediately expand its asset base through existing reserves that have already been discovered, validated, and typically characterized by geological surveys and production data. Proven reserves indicate that the oil or gas is recoverable under current economic and operating conditions, providing a more predictable and quantifiable return on investment.

In contrast, exploring new geographical areas involves inherent uncertainties, as there is no guarantee that the exploration will yield economically viable reserves. While investing in advanced drilling technology may enhance efficiency and recovery rates, it does not directly address the uncertainty of finding new reserves. Partnering with existing companies might bring some advantages in sharing risk and knowledge but still leaves the company exposed to the uncertainty of exploration and development outcomes. Therefore, acquiring proven reserves minimizes exploration risk and provides a more stable and immediate addition to the company's resource portfolio.