Big oil on the back foot in changing energy world

* State-backed Asian groups rival big Western firms

* Nimble specialists trouble U.S., European majors

* Resource nationalism a rising challenge

* Majors remain strong in tough environments

By Andrew Callus

LONDON, July 25 (Reuters) – It happens every time.

Oil prices fall and the industry turns cannibal: big energy companies hunt out bargains among overstretched producers and promising explorers. It’s the season for takeovers and asset deals again.

Only this time, there are no easy pickings for the U.S. and European heavyweights such as Exxon, BP, Shell and Chevron. The oil “majors”, which report second quarter results in the next few days, have rarely looked so threatened.

All the obvious cost-saving mega-deals have already been done, and an upsurge in resource nationalism that has dogged them for years in the big producing countries shows no sign of retreating.

Now state-backed competitors from energy-hungry Asian nations are elbowing them out of deals and new prospects, paying prices that the majors cannot justify to their investor owners.

For instance Shell lost out last week on bid target Cove Energy to Thailand’s state oil company, PTT Exploration and Production.

“The rival offer came as bit of a surprise,” said a source familiar with Shell’s setback.

A much bigger surprise came this week. Chinese state oil company CNOOC bid $15.1 billion for Canadian group Nexen – offering a 61 percent premium to the market price for a company weakened by drilling and production troubles. This will mark the biggest foreign takeover by a Chinese company if it succeeds.

Nexen is the kind of victim that might have been snapped up by one of the big Western players in past downturns. The same day, fellow Chinese oil company Sinopec bought some North Sea assets for $1.5 billion.

It was all so different at the turn of the millennium, when Western firms had it their own way. Exxon bought Mobil, BP acquired Amoco and Arco, Chevron took over Texaco, and Total gobbled up both Fina and Elf, as the Western majors enjoyed a feeding frenzy.

The huge growth in demand for oil and gas since then from China, India and other emerging markets are a factor in the new order, but some bankers believe the era of super-giant takeover deals is probably over too.

“Oil companies are about growth and the bigger you get the harder it is to grow,” said a London-based investment banker. “Big numbers really play against you. If you produce a billion barrels of oil per year, then every year you must show that you replaced that billion with new reserves. I really think the very biggest deals have all been done.”

Renewed resource nationalism is another barrier standing between the majors and the growth that is their lifeblood.

There’s nothing new about governments letting foreign companies develop their resources, then snatching back the profits and the assets. It happened repeatedly to Shell, BP, Exxon and others in the Middle East throughout the 20th century.

But a new cycle is underway, distracting management from the task of getting oil out of the ground, eroding profit margins and, in some cases, confiscating large chunks of business.

Witness BP’s constant political troubles in Russia with its 10-year old TNK-BP joint venture, Spanish group Repsol’s loss of its Argentine division to nationalisation this year, and the struggle all the big Western companies are having to get a profitable foothold in postwar Iraq.

Developed nations play the same game. The United States, Australia and Canada have all blocked foreign resource industry takeovers on national interest grounds, and there are few governments that have not slapped extra taxes on oil companies without much warning.

Exxon has turned back to its home patch for growth during the boom in extracting gas from shale. It spent $1.7 billion last year to buy two private producers of shale gas and $30 billion for U.S. natural gas producer XTO Energy in 2010. Those deals are looking less clever now as a glut holds natural gas prices at 10-year lows.

PEDALLING HARD

Data suggests that in exploration at least , the majors are pedalling fast to stand still – and on ever more costly bicycles.

Analysts at Wood Mackenzie predict that conventional oil and gas industry exploration spending will top $80 billion in 2012, up from $20 billion 10 years ago.

The oil majors – defined by WoodMac as BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell, Statoil and Total – will account for about $25 billion of that, up from around $8 billion in 2002. Yet their total reported production in the period has not grown at all, remaining at around 7.5 billion barrels a year.

Many people in the industry wonder what purpose the majors will serve in the years to come, given how effective the exploration industry has become and how oil services specialists such as Schlumberger, Halliburton, and Baker Hughes have grown in stature.

“I think it’s going to be very difficult for the majors to compete with very focused businesses like ours,” said Aidan Heavey, chief executive of the British exploration company Tullow Oil, which operates in one of the hottest development areas in the world – Africa.

Tullow has a market value of about $19 billion, less than 5 percent of world number one Exxon’s $398 billion, yet it has developed a range of projects around Africa, albeit with help from bigger companies.

“We don’t have the baggage of the downstream and the rest of what they (the majors) have. On top of that they are competing with a very hungry Asian market,” said Heavey, who works with both the Western majors and relative newcomers such as Chinese offshore group CNOOC on African projects.

OFFSHORE ARCTIC REFUGE

However, it might not be all bad news for the old guard. The shale revolution has delivered cheap, localised energy in the United States, but significant oil and gas finds are still being made in the ever-more inhospitable, dangerous and costly places the majors have made their own.

Offshore discoveries in deep water since 2002 account for about 40 percent of the total, WoodMac says, with the Arctic a growing theme.

It puts the majors’ exploration spending per barrel found at $3 in 2012, up from only $1 10 years ago, but this compares with between $5 and $10 on average among the pure exploration and production companies.

“The emergence of high tech, high impact exploration as key themes favours the majors because they have the capability, know-how and expertise to take on those types of development,” said Andrew Latham, WoodMac’s vice president, exploration services.