Exxon Struggles to Find New Oil .

http://online.wsj.com/article/SB10001424052748704409004576146362117...

 

The world's largest publicly traded oil company, is struggling to find more oil.

In its closely-watched annual financial report released Tuesday, the company said that for every 100 barrels it has pumped out of the earth over the past decade, it has replaced only 95.

0215exxon
Bloomberg News

Exxon now has more natural gas in reserve for future production than oil.

It's a conundrum shared by most of the other large Western oil-producing companies, which are finding most accessible oil fields were tapped long ago, while promising new regions are proving technologically and politically challenging.

 

Exxon said in the report that it is compensating for the shortfall in oil by stocking up on natural gas, mostly through its acquisition of XTO Energy Inc. last year.

 

But the shift toward gas is troubling some investors, because gas sells for less than the equivalent amount of oil. Many observers feel the move toward gas—a trend across the oil industry—is dictated more by shrinking access to oil fields than by a strong desire to emphasize gas production.

 

"The good old days are gone and not to be repeated," says Fadel Gheit, an analyst with Oppenheimer and Co. Bringing additional reserves from gas "is not going to give you the same punch" that oil would, he said.

 

Finding the equivalent, in either oil or natural gas, of a barrel in the earth for every one the company produces—a 100% reserve replacement rate—has become extraordinarily tough. Exxon boasted this was the 17th consecutive year of hitting this mark, but analysts agree that without the XTO deal, Exxon would have fallen far short this year.


Investors look at these reserve figures as an important gauge of future profitability and business strength.


Exxon now has more natural gas in reserve for future production than oil. And while the company has been very successful at finding or buying new natural gas, it has struggled to do the same with oil. For every 100 cubic feet of gas it has extracted , it has found or bought an additional 158.

Company spokesman Alan Jeffers says the company's "focus is on resources and projects that add shareholder value." That can be accomplished by finding oil, he says, but value can also be delivered through a corporate acquisition.

Exxon has become the largest U.S. company by market capitalization with a business model that stresses size and integration of assets. It has traditionally found crude oil, refined it into gasoline and other fuels and then sold these products.


But the stock market has recently favored oil companies, such as ConocoPhillips, that are shedding assets to get smaller. Smaller oil and gas finds can have a material impact on slimmed down companies.


The shift toward gas—and troubles with finding oil—has emerged as a theme for the giant Western oil companies. Royal Dutch Shell PLC's chief executive said last month the European company will produce more gas than oil next year for the first time in its 104-year history.

 

In the past few years, new technologies have unlocked vast resources of natural gas, depressing prices in North America and raising the possibility of falling prices in other regions also. Meanwhile, growing demand from emerging economies has sent crude-oil prices up strongly since prices cratered in 2008 during the worst of the recession. Natural gas prices closed today at $3.98 per million British thermal units, down 25% from a year ago, whereas a barrel of West Texas crude is up about 9.5% over that time, closing at $84.32 in trading on the NYMEX Tuesday.


Big oil companies are having trouble cashing in on the strong prices for crude oil. They have limited ability to drill in many oil-prone regions, such as Russia and part of the Middle East, due to politics. And even in promising Iraq, where many Western companies have won contracts, much infrastructure must be rebuilt. Exxon and others have also flocked to the oil-rich sands of Northern Alberta, Canada, but digging out the oil across vast swathes of forest comes at relatively high cost and generates concerns about the environmental impact.


One place where Western oil companies have found open doors is in deepwater exploration, because state-backed oil companies in Russia, China and the Middle East have little experience drilling these tricky wells. This has given Western companies access to new opportunities, such as Exxon's recent deal with Russian oil giant OAO Rosneft to explore the Black Sea.


The hunt for oil explains why these companies are so keen to restart work in the Gulf of Mexico, after a halt imposed by the Obama administration following the Deepwater Horizon accident. Some companies also are seeking permission to drill exploratory wells above the Arctic Circle. The Arctic remains one of the few unexplored regions of the world and the region above Alaska and western Canada is believed to be oil rich.


But deepwater projects take a long time to turn from a prospect that a geologist has identified into a producing asset. Chevron Corp.'s chief executive said last week that he expects to add new barrels of oil to its reserves from "several major deepwater projects" in future years. In 2010, he warned that Chevron added only one new barrel for every four it produced.


Given the difficulties these companies are facing, some investors have begun to wonder if Exxon bought XTO last year to "mask the extent of their replacement problem," said R. Blair Thomas, chief executive of EIG Global Energy Partners, an energy asset -management firm.


The market didn't like Exxon's announcement, sending the bellwether stock down 2.5% to $82.82 in afternoon trading Tuesday on the New York Stock Exchange.

Tags: exxon, gas, natural, oil

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Replies to This Discussion

Permalink Reply by Steve P on February 16, 2011 at 13:05

This article reflects the entire issue around our dependence on oil.  The world is using may more than it is finding to replace usage, and many of the places where it is being produced are in unstable, unreliable locales.  If Exxon, with its global reach and expertise can't do it, then it likely can't be done.  Many of the new developments for developing fields with the new technologies and drilling methods are encouraging, but it is unlikely that they can put too much of a dent in the world crude depletion curve.  Thus, the world will need an alternative fuel for vehicles  For those of us (a) who are lucky enough to own minerals in the Haynesville Shale, or other shale fields and (b) over the age of 60, the question becomes one of timing.  WHEN? 

 

It is pretty frustrating to see the obvious answer in front of us - begin converting large segments of our transportation usage to NG - to make use of the newly found surplus of NG in the US.  And then we have to deal with the politicians.  I just happen to be watching Cavuto today, and Congressman Geramendi (?), D - CA, was being interviewed about energy, both traditional and alternative.  He actually made the statement that the Gulf of Mexico is the "most dangerous place in the world" to explore for and produce oil and gas.    Perhaps the "D - CA" says it all.

Permalink Reply by Les Bamburg on February 16, 2011 at 17:14
Steve, I know everyone likes to think it is government or big oil or the automakers fault for lack of progress.  But in reality the blame lies with the buying public since they are in control of purchasing dollars and where those dollars are spent.
Permalink Reply by Steve P on February 16, 2011 at 19:15
well, not sure I agee in this situation.  The buying public really has no practical opportunity to switch their cars to NG.  The owner of a cross-country trucking fleet doesn't have that opportunity.  It will require a great number of pieces to fall into place to pull this off.  There's no infrastructure to support the "fleet" even if the fleet was going to convert next week.  I suppose the "buying public" writ large can push for that change through government, but the problem does not lend itself to solution without some push from something much more organized than the buying public.
Permalink Reply by P.G. on February 17, 2011 at 5:01
Folks can have any flavor they want so long as it's vanilla, huh?
Permalink Reply by Les Bamburg on February 17, 2011 at 18:39

PG, people can have any flavor they want and all they have to do is start asking.

Permalink Reply by Les Bamburg on February 18, 2011 at 3:51
GD, you just need a few commercials with high profile celebs showing it is cool to be green in your NGV.
Permalink Reply by Les Bamburg on February 17, 2011 at 18:37

Steve, the buying public has plenty of say - especially for light duty vehicles.  If large numbers began showing up at their Ford, Chevy, Toyota, etc dealerships asking about CNG cars & trucks, the companies would start churning them out like hotcakes.  But very few people in the US have an interest.  Heck most people can refuel those vehicles at home.

 

Regarding heavy duty trucks, again if the major trucking firms indicated a real commitment the infrastucture would get built.  But again, not many fleets have expressed any interest in giving up their diesel trucks.

 

Now what change through the government are people expecting?  The government cannot force people to buy natural gas vehicles.  There is already enough fuel savings to justify such a change without heavy government intervention.  People just need to start speaking with their wallet and change will happen.  

Permalink Reply by essay on February 18, 2011 at 12:15

I must respectfully disagree about demand creating supply, this is a classic Keynesian vs. supply-sider argument.  It is my personal position that supply creates it's own demand given competitive pricing and that we are in an artificially created pricing environment right now with regards to this subject.

 

The economics work right now, and I think we will see the gas-producing states continue to lead the way for NGV's, despite the federal government.  I don't mean to be overly persistent or aggravating but I can't help but feel like the government and political system is actively encouraging big business to stifle the competition for electric vehicles.

 

For evidence, circumstantial though it might be, I point to Honda, the only major manufacturer with a production light duty passenger NGV that I know of, putting it's home refueling subsidiary into receivership not long before they announced they were all-in on the "electric" car bandwagon promoted by the government.  The company also protests accusations  made by electric car enthusiasts that they were ever disinterested in the technology, yet also protests allegations that they were trying to stifle NGV's despite evidence to the contrary.  Here's a take on what I personally think was atrocious behavior by Honda leading up to the Fuelmaker bankruptcy: http://www.theautochannel.com/news/2009/04/06/455943.html

 

I also ask why we would arbitrarily limit ourselves to factory NGV's, what commuter or soccer mom on carpool duty wouldn't convert their existing vehicle and use in-home refueling if they could do it for a few thousand?  If one could get NG for $2 per GGE equivalent and it cost $5k to switch with $3 gasoline and driving a 20mpg vehicle you could pay for it in a little over three years if you're like me and put 25-30k/year on a vehicle.  Obviously public refueling stations and higher gasoline prices make this scenario even more attractive.  The problem is it costs way more than $5k.

Permalink Reply by little ole 1st grade teacher on February 16, 2011 at 17:18

Question?..... Do you think Exxon might go back in and pickup Natural Gas Leases  that they let expire and look at the property as a possible oil producing tract? 

Permalink Reply by Max on February 17, 2011 at 7:05

That depends little ole 1st grade teacher.  How far is your property located from Jed Clampett's? LOL

 

Personally, I don't think there are any oil fields left to be found in this area.  There's been too many holes drilled to not stumble on a new find. 

 

Resources claim that the U.S. oil production peeked in the 60's.  I tend to believe this because oil companies would rather drill a hole standing on dirt rather than sitting in the water.  Why? Cost.  The easy oil is gone, I used it up when I was driving a 65 Chevy.

Permalink Reply by little ole 1st grade teacher on February 17, 2011 at 11:13

Max, thank you for your reply; however, this wasn't exactly the answer I had hoped for. 

Is there anyone out there that sees the situation differently?

Permalink Reply by BirdDawg, plain ole' idiot on February 18, 2011 at 13:42
Yeah, I see it diffeerent. I was driving a 64 Chevy.

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