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OilandGasNewsOnline: Top oil firms spend more but get less crude

Volume: 25, No. 8 February 25 – March 2, 2008

LONDON:

The world’s three largest fully publicly traded oil firms are investing billions of dollars more, but there is little sign yet the extra spending is leading to higher production.

Exxon Mobil Corp, Royal Dutch Shell and BP posted falling 2007 output, even though they upped capital spending to over $60 billion and some expect a further rise this year.

The drop reflects the way higher oil prices reduce the amount of oil companies get under production-sharing agreements with governments, and declining supply from ageing fields in some regions like the North Sea.

“Production growth is still a real problem for the UK majors,” said Ivor Pether, who manages the equivalent of $1.4 billion at Royal London Asset Management, including BP and Shell shares.

Violence in Nigeria, and moves by countries like Venezuela to get more cash and control from firms that work their oil and gas fields, have also cut supply for some companies.
Oil firms are lifting spending after years of under-investment and rising demand helped send prices skyrocketing. Shell and BP plan increases of up to 14 per cent and 16 per cent respectively in 2008.

But much of the boost is being soaked up by rising costs, as well as the drop in the dollar. Also, it takes years to bring new fields into production, meaning the impact of higher spending on supply is some way off.

“The lead time between exploration and production is about seven to eight years,” said analyst Jason Kenney of ING.

“So new investment today is not going to come through until 2015 in terms of production, cash flow and earnings.”

Shell posted a 4.5 per cent drop in oil and gas output to 3.315 million barrels of oil equivalent (boepd) in 2007, the largest drop among the top three oil companies, and said supply may fall further this year.

Production was hit by the reduction of Shell’s stake in the Sakhalin gas project in Russia following government pressure and snags at Shell’s unit in Canada which squeezes crude from tar sands. 
 
http://www.oilandgasnewsonline.com/News.asp?Article=24019

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