http://www.bloomberg.com/apps/news?pid=20601110&sid=axUZLDnNnHgM
Not Enough Oil Is Lament of BP, Exxon on Spending .
May 19 (Bloomberg) -- Never have so many oil and gas companies spent so much to produce so little.
That's the challenge facing Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total
SA and ConocoPhillips, which will spend a record $98.7 billion this year on exploration and
production, Lehman Brothers Holdings Inc. estimates. Costs more than quadrupled since 2000 as
explorers targeted more challenging reservoirs and demand rose for labor and material.
New supply from outside OPEC nations will meet about 20 percent of growth in world demand during the
next four years, data from the International Energy Agency show. The lack of supply has traders
betting oil will remain at about $120 a barrel for at least eight years, according to futures on the
New York Mercantile Exchange.
The wagers are buttressed by delays at fields including Kashagan, a Kazakh deposit where the budget
has more than doubled to $136 billion and the first production is eight years behind schedule.
Waters frozen half the year forced contractors to build artificial islands, while care must be taken
to protect workers from deadly hydrogen sulfide fumes emitted by the wells.
``The future is going to be very trying for the international oil companies,'' said Robert Ebel,
chairman of the energy program at the Center for Strategic and International Studies in Washington.
``There's no more easy oil for them. Kashagan is a shining example of the problems they face
bringing new oil into play.''
$200 Oil
The failure to develop new energy sources may drive crude to between $150 and $200 a barrel within
two years, Arjun N. Murti, an analyst with Goldman Sachs Group Inc. in New York, predicted in a May
5 report. Oil in New York closed at $126.29 a barrel on May 16, four times the price in 2003.
Options contracts that allow buyers to lock in crude at $200 a barrel and expire in December on
Nymex have soared more than ninefold since January.
Oil companies are turning to more technically challenging fields as oil-rich nations limit access.
Russia is taking control of BP's stake in the Kovykta gas field, a deposit in east Siberia big
enough to supply Asia for five years. Algeria has imposed a profits tax, and Venezuela seized four
oil ventures from companies including Exxon Mobil and ConocoPhillips a year ago.
`Something Different'
Drillers could access only 7 percent of known world reserves in 2005, down from 85 percent in 1970
after Middle Eastern nations took control of their fields, according to a July report by the
National Petroleum Council in Washington. The 13 members of the Organization of Petroleum Exporting
Countries held 919 billion barrels of oil as of 2006, or 76 percent of proved global reserves,
according to BP. Add Russia, the world's second-biggest producer, and the total rises to 83 percent.
``Normally, high prices would mean higher supply,'' said Fadhil Chalabi, executive director at the
Centre for Global Energy Studies in London and a former Iraqi oil ministry undersecretary. ``What is
happening is something different. The international companies are denied access to areas of abundant
oil within OPEC, and it's getting costlier in other areas.''
Rising Costs
The cost to find and develop a barrel of crude between 2000 and 2007 more than quadrupled to $18
from $4, said Andrew Latham, vice president of exploration services at Wood Mackenzie Consultants
Ltd. in Edinburgh. Demand in the period climbed 11 percent, or 8.8 million barrels a day, according
to the IEA. Consumption will jump another 8.5 percent to 95.8 million barrels a day by 2012, the
figures show.
Even as countries reclaim their reserves, many are relying on high oil prices rather than increased
production to meet government budgets. Output in Russia is expected to fall for the first time in a
decade, and Saudi Arabia's decision this month to increase output by 300,000 barrels a day still
won't offset a 390,000 barrel-a-day drop in monthly OPEC production in April.
``This is a huge issue,'' said Joseph Stanislaw, chief executive officer of JA Stanislaw Group and
former head of Cambridge Energy Research Associates. ``We don't have access to those areas to push
the peak production higher and higher.''
Oil companies agree, to a point.
Exxon Mobil could ``do even more if governments provide access to further quality opportunities,''
said Tony Cudmore, a spokesman for the Irving, Texas-based company.
Better Terms
Shell Chief Executive Officer Jeroen van der Veer said in January that the company has to deal with
state-run companies demanding better terms when negotiating energy deals and that this trend will
continue.
BP Chief Financial Officer Byron Grote said April 29 that production will be little changed this
year if oil stays at $100 a barrel because governments will take a larger share of the output.
During the Arab oil embargo of 1973 to 1974, soaring oil prices cut consumption by about 2 percent,
IEA Chief Economist Fatih Birol said in Houston May 6. This isn't happening today because of demand
in emerging economies, where subsidies blunt the effect of higher oil prices, he said.
Previous oil shocks led to new supply, including the drilling in the North Sea and the 800-mile
Trans-Alaska Pipeline System.
Oilfield Services
Deepwater and Arctic exploration has been a boon for oilfield services companies, which provide
drilling equipment, pipes and subsea engineering, said Peter Hitchens, an analyst with Seymour
Pierce in London.
Record prices support drilling Brazil's offshore Tupi field, which may have 5 billion to 8 billion
barrels of recoverable reserves lying as much as 4.4 miles beneath the ocean surface.
Consumers are paying for the failure to find more crude. Gasoline cost an average $3.732 a gallon at
the pump in the U.S. on May 12, a record then, according to the AAA. It takes $220,000 to fill a
Boeing 747 with jet fuel, about double the price a year ago, Bloomberg calculations show.
``The international oil companies cannot dictate the tempo any more,'' said Fadel Gheit, an analyst
at Oppenheimer & Co. in New York. ``They can try projects that didn't work two years ago, but it's
not a question of money. They don't have access to resources.''
Jan Rasmussen