Petr
01-28-2006, 07:40 AM
http://news.yahoo.com/news?tmpl=story&cid=2632&ncid=2632&e=11&u=/ibd/20060128/bs_ibd_ibd/2006127general
Oil Giants Struggle To Compete With New Wave Of Nationalism
Alan R. Elliott Fri Jan 27, 7:00 PM ET
These should be the best of times for oil majors. Soaring energy prices have created huge profit growth to record levels.
But while oil prices have more than doubled since the start of 2004, Exxon Mobil's (NYSE:XOM - News) shares are up 48% -- and have moved sideways for the past 11 months.
A major concern is how oil giants will replace their reserves.
A big reason is the new wave of nationalism. The owners of many of the world's undeveloped fields, countries like Nigeria, Libya, Bolivia and Venezuela, are demanding a bigger piece of the pie.
Meanwhile, state-owned oil companies from places such as China, India and Malaysia are bidding on reserves and projects worldwide.
"They are going out and acquiring assets in a very aggressive way," said Energy Intelligence Group president, Tom Wallin.
National Oil Cos. Huge
Nationals represent seven of the 10 largest oil producers in the world. The top five produce more than twice the oil and gas each day of their five publicly held peers, according to industry researcher, Energy Intelligence Group.
Saudi Arabia's Saudi Aramco tops the list. The National Iranian Oil Co. and Mexico's Pemex follow.
The top three commercial operators: No. 5 Exxon, No. 6 BP (NYSE:BP - News) and No. 8 Royal Dutch Shell (NYSE:RDS-A - News). Notably, they all rank far less in terms of reserves. (See accompanying chart.)
Those giants began consolidating rapidly in the late '90s, from 20 "majors" to seven "super majors": Exxon, BP, Total (NYSE:TOT - News), Royal Dutch Shell, ChevronTexaco (NYSE:CVX - News), ConocoPhillips (NYSE:COP - News) and Lukoil, a former state-owned operation based in Moscow.
Although the group is large, national oil and gas operations often enjoy a larger playing field. For starters, foreign oil companies are mostly shut out of production contracts in countries like Saudi Arabia and Mexico.
Then there are sanction-blocked territories. Last year in
Iran, China's 55% government-owned Sinopec signed a $70 billion, 30-year gas deal with National Iranian Oil. Nationals in Iran, India and Pakistan are also planning a $7 billion, 1,600-mile gas pipeline.
U.S. companies can only watch from the sidelines.
The same holds true in Sudan, where humanitarian and terrorism issues prevent investment by many Western companies.
Elsewhere, nationals and commercial firms compete directly, but the balance of power is shifting.
In the past, production-sharing deals typically gave oil companies 80%, with a 20% royalty to the host country. That model has reversed as reserve-holding countries realize they can demand a much bigger share.
"It's a difficult balance for both companies and governments to get right," said Robert Plummer, senior analyst with the London-based industry consultant, Wood Mackenzie. "If government (demands are) too harsh, investment activity falls."
Smaller Piece Of Bigger Pie
So far, reserve-rich countries are finding plenty of takers even on less-generous terms, especially with oil prices at record highs.
In particular, national oil companies that bid overseas are less tied to the strict rate-of-return considerations that rule commercial operators.
The effect was clear in last year's oil and gas lease awards in Libya.
"The Indian (nationals) got in there very strong, bidding (rates of return) below 10%," said Philip Stark, vice president with industry information group IHS Energy. "That is simply not acceptable to the (largest commercial companies)."
So the big seven can find themselves priced out of the bidding. No U.S. companies won bids in Libya's second round lease awards.
Earlier, in the first round auctions in 2004, U.S. companies did win 11 of 15 awards. But just one went to a super major -- Chevron.
The big publicly held winners in recent years have been independents able to wring profits from smaller production shares. Key awards include Occidental Petroleum (NYSE:OXY - News) in Libya, Apache Oil (NYSE:APA - News) in Egypt and Anadarko Petroleum (NYSE:APC - News) in Algeria and Venezuela.
The publicly held super majors still wield considerable advantages.
Vaulting oil prices have left the super majors sitting on an estimated $75 billion in cash. They are, for the most part, the leaders in natural gas output. Russia's state-owned Gazprom, though, remains No. 1 in gas production and reserves held.
The super majors also hold much of the industry's top-shelf expertise and technology. That ace has reserved for them much of the large and complex deepwater reserves.
But nationals are rapidly advancing. Deep pockets will eventually buy access to leading edge technology. More partnerships with publicly held companies are providing engineers world-class training.
Expenses Rising Sharply
But both groups face rig and labor shortages and soaring services and equipment costs. Those constraints are likely to worsen as activity increases this year.
Saudi Aramco plans a 61% increase in its number of wells drilled in 2006. Brazil's Petrobras, which holds reserves equivalent to those of Britain's BP, plans a 69% increase in spending.
Overall, the industry plans to spend $239 billion on exploration and production this year, up 15% from 2005, according to a Lehman Bros. survey released last month.
But with E&P costs so much higher, it's not clear how much more actual exploring and producing the industry will be doing.
The super majors therefore find themselves looking to nationals as potential partners. Royal Dutch Shell signed an exploration and production pact with India's Oil & Natural Gas Co. this month.
Another avenue, Plummer said, is big oil's increasing diversification into natural gas, liquefied natural gas and renewable energy.
"These companies have been evolving for a number of years," he said, "and they will continue to evolve."
Oil Giants Struggle To Compete With New Wave Of Nationalism
Alan R. Elliott Fri Jan 27, 7:00 PM ET
These should be the best of times for oil majors. Soaring energy prices have created huge profit growth to record levels.
But while oil prices have more than doubled since the start of 2004, Exxon Mobil's (NYSE:XOM - News) shares are up 48% -- and have moved sideways for the past 11 months.
A major concern is how oil giants will replace their reserves.
A big reason is the new wave of nationalism. The owners of many of the world's undeveloped fields, countries like Nigeria, Libya, Bolivia and Venezuela, are demanding a bigger piece of the pie.
Meanwhile, state-owned oil companies from places such as China, India and Malaysia are bidding on reserves and projects worldwide.
"They are going out and acquiring assets in a very aggressive way," said Energy Intelligence Group president, Tom Wallin.
National Oil Cos. Huge
Nationals represent seven of the 10 largest oil producers in the world. The top five produce more than twice the oil and gas each day of their five publicly held peers, according to industry researcher, Energy Intelligence Group.
Saudi Arabia's Saudi Aramco tops the list. The National Iranian Oil Co. and Mexico's Pemex follow.
The top three commercial operators: No. 5 Exxon, No. 6 BP (NYSE:BP - News) and No. 8 Royal Dutch Shell (NYSE:RDS-A - News). Notably, they all rank far less in terms of reserves. (See accompanying chart.)
Those giants began consolidating rapidly in the late '90s, from 20 "majors" to seven "super majors": Exxon, BP, Total (NYSE:TOT - News), Royal Dutch Shell, ChevronTexaco (NYSE:CVX - News), ConocoPhillips (NYSE:COP - News) and Lukoil, a former state-owned operation based in Moscow.
Although the group is large, national oil and gas operations often enjoy a larger playing field. For starters, foreign oil companies are mostly shut out of production contracts in countries like Saudi Arabia and Mexico.
Then there are sanction-blocked territories. Last year in
Iran, China's 55% government-owned Sinopec signed a $70 billion, 30-year gas deal with National Iranian Oil. Nationals in Iran, India and Pakistan are also planning a $7 billion, 1,600-mile gas pipeline.
U.S. companies can only watch from the sidelines.
The same holds true in Sudan, where humanitarian and terrorism issues prevent investment by many Western companies.
Elsewhere, nationals and commercial firms compete directly, but the balance of power is shifting.
In the past, production-sharing deals typically gave oil companies 80%, with a 20% royalty to the host country. That model has reversed as reserve-holding countries realize they can demand a much bigger share.
"It's a difficult balance for both companies and governments to get right," said Robert Plummer, senior analyst with the London-based industry consultant, Wood Mackenzie. "If government (demands are) too harsh, investment activity falls."
Smaller Piece Of Bigger Pie
So far, reserve-rich countries are finding plenty of takers even on less-generous terms, especially with oil prices at record highs.
In particular, national oil companies that bid overseas are less tied to the strict rate-of-return considerations that rule commercial operators.
The effect was clear in last year's oil and gas lease awards in Libya.
"The Indian (nationals) got in there very strong, bidding (rates of return) below 10%," said Philip Stark, vice president with industry information group IHS Energy. "That is simply not acceptable to the (largest commercial companies)."
So the big seven can find themselves priced out of the bidding. No U.S. companies won bids in Libya's second round lease awards.
Earlier, in the first round auctions in 2004, U.S. companies did win 11 of 15 awards. But just one went to a super major -- Chevron.
The big publicly held winners in recent years have been independents able to wring profits from smaller production shares. Key awards include Occidental Petroleum (NYSE:OXY - News) in Libya, Apache Oil (NYSE:APA - News) in Egypt and Anadarko Petroleum (NYSE:APC - News) in Algeria and Venezuela.
The publicly held super majors still wield considerable advantages.
Vaulting oil prices have left the super majors sitting on an estimated $75 billion in cash. They are, for the most part, the leaders in natural gas output. Russia's state-owned Gazprom, though, remains No. 1 in gas production and reserves held.
The super majors also hold much of the industry's top-shelf expertise and technology. That ace has reserved for them much of the large and complex deepwater reserves.
But nationals are rapidly advancing. Deep pockets will eventually buy access to leading edge technology. More partnerships with publicly held companies are providing engineers world-class training.
Expenses Rising Sharply
But both groups face rig and labor shortages and soaring services and equipment costs. Those constraints are likely to worsen as activity increases this year.
Saudi Aramco plans a 61% increase in its number of wells drilled in 2006. Brazil's Petrobras, which holds reserves equivalent to those of Britain's BP, plans a 69% increase in spending.
Overall, the industry plans to spend $239 billion on exploration and production this year, up 15% from 2005, according to a Lehman Bros. survey released last month.
But with E&P costs so much higher, it's not clear how much more actual exploring and producing the industry will be doing.
The super majors therefore find themselves looking to nationals as potential partners. Royal Dutch Shell signed an exploration and production pact with India's Oil & Natural Gas Co. this month.
Another avenue, Plummer said, is big oil's increasing diversification into natural gas, liquefied natural gas and renewable energy.
"These companies have been evolving for a number of years," he said, "and they will continue to evolve."