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.
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
Views: 146
Replies to This Discussion
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Permalink Reply by Two Dogs, Pirate on -
My opinion is that if anyone can change the fuel used in transportation to natural gas, that would be Exxon. They may take a lick at first but think of the long run. All we need is the fueling stations to provide the NG and the price to be lower at the pump. Exxon has the stations that could add additional tanks to provide NG. We are a resourceful group of folks here in the USA, just look at the ones that found ways to burn chicken grease in their diesel powered rides. I would think that modifications made by backyard inventors to burn NG in their old clunker will abound as long as NG is cheaper than gasoline.
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Permalink Reply by Les Bamburg on
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TD, if and when the buying public begins pushing for NG as a transportation the stations will get built quickly. There are plenty of companies able and willing to build refuelling stations if they know the market exists. But the public is just not making the push for transition to NG.
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Permalink Reply by Parkdota on
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I'd like to read some data or a study detailing what the breaking point is for Americans when it comes to gasoline prices bc that's when things will change. I hear people complain at $3 a gallon, $4 seems to cause stress, and I would think $5 would lead to the demand for cheaper NG usage. The problem, though, is that these types of changes don't happen over nite.
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Permalink Reply by Joe Aldridge on -
What everybody seems to be over looking is the possibility of turning NG directly into low/no sulfur diesel. At the present time to produce low sulfur diesel; the product has to be pasted twice through units. Once to produce it and a second time to remove the sulfur. This is an expensive process but mandated by the Fed's. There are several companies (Exxon, I've heard is one of them) that are in the process of designing and building plants to make low sulfur diesel in one step from NG. This will bring the cost of diesel down and probably up the price of NG. So I'm sure Exxon has a plan for the NG its drilling, producing and acquiring or they would not be in the market. Their management is a very long range forward thinking group. I would put my money on them any day of the week. Its hard to believe that some analyst on Wall Street can be or is smarter that the Number 1 publicly traded oil company in the world.
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Permalink Reply by Les Bamburg on
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Joe, a few GTL plants already exist but they are not cheap and only seem to work where you have really cheap natural gas in places like Malaysia and Qatar. Also there are various co-products that are produced as part of the process that must be marketed. To date LNG has been more attractive than GTL for stranded gas resources but that could change.
By the way ExxonMobil cancelled their only GTL project (Qatar) but Shell is started their Qatar project up this year.
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Permalink Reply by Joe Aldridge on
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Les, I don't know how to tell you more directly than I did. There are at least 3 projects that are starting in LA and TX NOW - AGAIN NOW. They could be in production by this time next year. That I'm not sure of though - I don't know the time table. And I don't know if I really can or should release names because these companies evidently have not or do not or are not ready to announce the fact that they are in construction. But believe me they are. And Yes you are correct they are VERY Expensive to build but with a very long term stream of NG at very reasonable prices they can afford to build the units and YES make a profit.
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Permalink Reply by Les Bamburg on
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Joe, I think you have some bad information. There has been no news or statements about the construction of GTL plants in the US. Please provide where you have read about such plants.
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Permalink Reply by Max on
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from google;
http://www.nytimes.com/2010/12/24/business/energy-environment/24fue...
Oil is still to cheap for any switches soon.
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Permalink Reply by Joe Aldridge on
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Max, your statement, "Oil is still to cheap for any switches soon", is not correct if you read the last paragraph of the article. Very good article. Glad you posted it.
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Permalink Reply by Max on
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Joe,
I read through several articles and posted the one above because it followed the thread without getting to far off the topic.
There were several articles that expanded on the cost of NG rising if it became a substitute for oil. That price increase along with the cost of converting would make oil less expensive for several years to come.
When we do realize that oil is running out, the switch will be made, to what, I don't know. I would like to see NG used because we have plenty of it. The down side, it has to be cheap, or it could be passed over for other technologies.
We love gasoline. I've paid .28 cents/gal. and up to $5.16/gal. in a period of 40 years. I suspect that we are going to be using it for the next 20 years weaning ourselves off of it. In the mean time, I may have to sell my truck and get one of those greenies. LOL
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Permalink Reply by Joe Aldridge on
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Max, I've toyed with the idea of converting my old RAM 1500 to NG. It would definitely be cheaper at the present time to run NG. Its just the initial conversion cost that has me slowed down. Thanks again for posting the article.
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