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Strategy shift key to oil majors’ growth

OGN Online

August 11 – 17, 2008

Strategy shift key to oil majors’ growth

LONDON: Western oil majors need to speed up a strategic shift into more complex oil and gas projects if they wish to return to consistent production growth after another quarter of disappointing output.

The world’s largest fully public-traded oil company by market capitalisation, Exxon Mobil, reported an 8 per cent fall in oil and gas production, compared to the same period in 2007.

Industry No 2 Royal Dutch Shell said output dropped 1.6 per cent while No 3 BP’s was flat.

The results follow a trend of falling output and ditched or scaled back growth targets across the sector in recent years.

“The track record of delivering on production growth has been poor,” said Gary Hobbs, senior analyst at Fortis Private Banking.

Investors’ focus on production explains why record profits, driven by oil prices that hit an all-time high above $147/barrel on July 11, have failed to lift the companies’ shares.

The DJ Stoxx European oil and gas sector index trades at the same level now, as oil hovers around $125/barrel, as it did when oil was under $30/barrel in 2001.

The weak production figures reflect a sea-change in the oil industry in recent decades, as resource holders increasingly reserve their richest fields for their state oil companies.

“Access to new resources is constrained,” BP’s chief executive told reporters.

In response, oil companies are being forced to look at projects which they would previously not have considered due to the high costs and technical challenges involved. Yet, analysts say some, including Exxon and BP, could do more.

Traditionally, oil companies drilled for oil and gas in large, easy-to-access reservoirs. But today, for western oil companies at least, the era of easy oil is over.

Now, the industry must increasingly squeeze crude from bitumen-drenched soil in Canada and crack open shale deposits in North America, coal seams in Australia and “tight” sandstone reservoirs across the globe to unlock natural gas.

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