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Bloomberg: Repsol, BP, European Oil Companies Struggle to Boost Output

By Stephen Voss

Feb. 27 (Bloomberg) — Repsol YPF SA, Europe’s fifth-biggest oil company, joined BP Plc and Royal Dutch Shell Plc in cutting production forecasts after their output dropped in 2006 amid rising energy nationalism and supply disruptions.

Repsol’s production this year will slide about 12 percent, following a 3.3 percent decline in 2006, the Madrid-based company said today. Output at Total SA, Europe’s third-biggest oil company, also fell last year.

European producers pumped less oil and gas because governments in Venezuela and Russia took greater control of their energy industries and disruptions and delays curbed supply in Nigeria and the U.S. Total was the only company among the top five, which includes Eni SpA of Italy, to increase its forecast for production growth this decade.

“We’re in a business where they don’t offer us the easy territory to produce,” Thierry Desmarest, chairman of Total, said at a conference organized by the French Association of Economic and Financial Journalists in Paris, where the oil company is based. “Many oil producing nations don’t have an urgency to develop reserves with international oil companies unless it’s expensive and complicated.”

Repsol said production this year will drop because of the partial nationalization of reserves in Venezuela and Bolivia. The company in January 2006 said it would write off a quarter of its reserves because of higher taxes in Bolivia and deteriorating output in Argentina.

“The really big fields are maturing so the yields are getting smaller,” Repsol Chairman Antonio Brufau said in an interview today in Madrid. “State-owned companies are in control of many of the big areas, so private companies have less access.”

Abandoned Targets

Venezuelan President Hugo Chavez signed a decree yesterday allowing the government to seize at least a 60 percent stake in the nation’s last four heavy-crude-oil private joint ventures by May 1. The ventures include stakes held by BP and Total.

BP this month abandoned an earlier goal of increasing output by 4 percent a year through the end of the decade. Instead, the London-based company adopted a target that equates to about 1.5 percent annual growth through 2012. BP last year posted its first annual production decline this decade because of curbed pumping in Alaska and delays repairing Gulf of Mexico rigs.

Higher prices and demand for oil services and construction crews that had “stretched to breaking point” were reasons for BP’s new “conservative” forecasts, Tony Hayward, who takes over as Chief Executive Officer on Aug. 1, said this month.

Falling Production

Oil and gas production last year fell 2.2 percent at BP, 5 percent at Total and 1 percent at Shell.

Production at Eni rose 1.9 percent last year, the sole producer among Europe’s top five whose output rose in the period. The Rome-based company said the amount of oil and gas it extracts through 2010 will be less than previously expected after delaying the start-up of the Kashagan field in Kazakhstan by two years and losing output in Venezuela.

“It’s becoming difficult to get projects up and running on time and it’s also becoming more expensive,” said Richard Griffith, an analyst at Evolution Securities Ltd. in London.

The battle to pump more oil and gas reflects greater control moving into the hands of state-run companies such as OAO Gazprom, which last year took a majority stake in the Shell-led Sakhalin-2 venture in Russia’s Far East. Militant attacks in Nigeria have also slashed output at The Hague-based Shell.

Gazprom, the world’s biggest producer of natural gas, is also seeking a greater role in a BP-led field in Russia.

“In the case of BP and Shell, there is quite a long track record of them putting up targets, to then come back and disappoint,” said Griffith.

Griffith cut his recommendation on BP to “add” from “buy” earlier this year, and cut Shell to “reduce” from add.”

Total predicted output growth through 2010 will rise by an average 5 percent, compared with a previous estimate of 4 percent.

Still, Desmarest said there are numerous countries where investments are “impossible,” highlighting Saudi Arabia, Mexico and Kuwait. Host nations generally aren’t eager to develop reserves with international oil companies unless they involve liquefied natural gas, he said.

To contact the reporter on this story: Stephen Voss in London at [email protected]
Last Updated: February 27, 2007 12:29 EST

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