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Bloomberg: Chevron, Shell Lead Oil Majors in Discoveries, Bernstein Says

By Anthony DiPaola

Jan. 18 (Bloomberg) — Chevron Corp. and Royal Dutch Shell Plc led the largest publicly traded oil companies in crude discoveries last year as Eni SpA and ConocoPhillips were among the least successful, Sanford C. Bernstein & Co. analysts said.

Oil companies had to drill deeper to find fields, which are increasingly smaller than in the past, Neil McMahon, a London- based Bernstein analyst, wrote in a report today. That makes it harder for companies to replace pumped oil with new finds each year, McMahon said.

“The biggest challenge for the majors is declining reserves per well,” McMahon wrote in the report. “We recommend investors seek out the better quality exploration companies.”

Oil and gas companies must either find at least as many reserves as they produce or purchase resources from other companies to keep their asset base from shrinking. Chevron, the second-largest U.S. oil producer, and Shell, the biggest in Europe, were among the most successful in finding deepwater oil with “Eni and ConocoPhillips being the losers,” McMahon wrote.

Chevron and Total SA are Bernstein’s top picks for companies well-placed to benefit from exploration, he said.

Chevron, Shell and Exxon Mobil Corp., the world’s largest oil company, all benefited from new finds in Australia. Success in exploring there is set to continue, McMahon wrote.

ConocoPhillips, the third-largest U.S. oil company, said last week that 2006 reserves rose about a third after the company in March bought Burlington Resources Inc. Preliminary proved reserves are estimated to be the equivalent of 11.1 billion barrels of oil, up 2.6 billion barrels from a year earlier, the Houston-based company said.

The company paid $35 billion to buy Burlington and become the largest U.S. gas producer. Last year it also completed the purchase of a 20 percent stake in OAO Lukoil, Russia’s biggest oil company.

Eni Output Limited

Production declined at some of the world’s largest oil companies last year as Venezuela cut off access to fields there and political tension in countries like Nigeria shut in crude. Those factors combined with rising prices in pushing companies to seek new reserves in areas like deepwater fields.

Rome-based Eni, led by Chief Executive Officer Paolo Scaroni, planned to raise production 3 percent last year. The company wouldn’t be able to exceed an average of 1.8 million barrels of oil equivalent a day for the full year because it lost production in Venezuela in a dispute with that country’s government, Scaroni said in May.

BP Production Drops

Global deepwater discoveries fell by 8 percent last year at the same time as oil prices rose 17 percent to an average of $66 a barrel, Bernstein said. That indicates that new oil field discoveries are becoming fewer and those that are being developed are smaller, the report said.

The majors, as the world’s largest publicly traded oil companies are known, made 40 deepwater discoveries in nine countries, Bernstein said.

A slowdown at BP Plc’s Prudhoe Bay oilfield in Alaska contributed to the company’s first annual decline in production since it completed the acquisitions of Amoco Corp. and Atlantic Richfield Co. at the start of the decade.

Fewer reserves may also boost oil prices, according to the report. “Lack of significant new volumes will support a secular upward course for oil prices,” Bernstein said.

To contact the reporters on this story: Anthony DiPaola in Rome at [email protected] .

Last Updated: January 18, 2007 09:59 EST

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