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The Guardian: The growing fly in Big Oil’s ointment

Nils Pratley , Friday February 1 2008

Which quoted oil company is most critical to the functioning of the global economy? Which one, if it went out of business overnight, would cause the machine to stall most quickly? A few years ago, we would have chosen from the obvious short list – Exxon, Shell, BP – but the other day one UK oil chief executive gave a surprising answer. It’s Schlumberger, he said.

US group Schlumberger is the world’s largest oil -services company. It doesn’t own any oil itself, but its 80,000 employees in 80 countries are busy looking for the stuff, and producing it, as contractors. Remove them overnight and an awful lot of oil would stop flowing very quickly.

There is a connection here with Shell. The Anglo-Dutch group’s profits hit a record yesterday, provoking the usual accusations of profiteering, but the company has a problem: production fell for the fifth year in a row. Production is down partly because of the progress made by the likes of Schlumberger. Oil-rich nations no longer feel the need to ring a member of the Big Oil club when they want to exploit their natural resources.

Big Oil demands production-sharing agreements and a big cut of the spoils to fund its big dividend requirements. Confident governments – and there’s nothing like oil at $90 a barrel to inspire confidence – are instead buying project-management expertise directly from services companies. Alternatively, they take their cue from Russia and demand more onerous terms from the club.

For Shell and others, the easy life is over: capital expenditure is $25bn a year and rising, and the cash is increasingly being spent in places where, given the choice, it would rather avoid. Digging up the tar sands of Canada is no picnic.

Few hearts will bleed for the western oil majors, and nor should they. But obscene profits? Think how much the Saudis and Russians are making. Even Schlumberger, a winner in the new order, is only one quarter of the size of Exxon.

http://www.guardian.co.uk/business/2008/feb/01/3

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