By Steve Goldstein
Last update: 6:08 a.m. EST Feb. 18, 2008
LONDON (MarketWatch) — Exxon Mobil Corp. is struggling to replace reserves and may have to boost capital spending substantially, an analyst said on Monday.
The world’s largest oil producer said on Friday afternoon that it unearthed proved reserves of 1.2 billion barrels of oil equivalent during 2007, or 76% of production.
Excluding the appropriation of Venezuela assets, which knocked reserves by around 500 million barrels, and its proved reserve replacement ratio would have been 107%.
Using a method of measurement that the Securities and Exchange Commission doesn’t recognize, but that oil firms use to make investment decisions, and Exxon Mobil’s reserve replacement ratio excluding Venezuela would have been 132%.
Exxon’s reserve replacement “is not a good result given the increases in expenditure that the oil companies are putting through,” said Peter Hitchens, an oil analyst at the U.K. brokerage Seymour Pierce.
Exxon Mobil’s capital expenditure in 2007 was $20.85 billion, up 5% from 2006.
Plus, Venezuela’s expropriation of assets isn’t quite the one-off event that Exxon presented. More international coverage.
“Many sovereign states have seen the returns that the majors are making out of their oil and gas reserves and are looking at capturing some, if not all of it, themselves,” he said in a note to clients.
Royal Dutch Shell for instance, reported declining production in part because Russia took control of part of a disputed field. Shell is expected to report its reserve replacement ratio sometime in March.
“The other integrated oil companies will be reporting their reserve replacement ratios over the coming weeks, and we believe that these will likewise show that the industry is struggling to grow. To counter this, we believe that capital expenditure will have to rise substantially, which is excellent news for the oil-service companies,” Hitchens said.
Steve Goldstein is MarketWatch’s London bureau chief.
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