Big Oil: Looking Both Ways

I recently described the dangers posed by declining production at many of the world’s major oil fields. Now, in the past quarter, virtually all the world’s major public exploration and production companies — including ExxonMobil, Chevron, BP, and ConocoPhillips — have reported lower crude oil production, based at least in part on “normal declines” in their fields. I continue to believe that this is a far bigger problem than most people recognize. It’s also one of the reasons why respected energy seer T. Boone Pickens believes that, regardless of how rapidly world crude demand rises, global productive capacity may never materially exceed today’s levels.
But let’s look for just a minute at the earnings trends that seem to be emerging this quarter. We’ll begin with the exploration and production side, then move to oilfield services.

[…]

It was the same story at ConocoPhillips, where BOE production was down nearly 10% from last year. As with the other big oil companies, “normal field declines” was first among the identifieable reasons management cited for the drop-off.

Turning to the oilfield services portion of the energy sector, Schlumberger took the first shot, with earnings that approached 150% of last year’s. But every bit as important — as I told my Foolish friends when I discussed the company’s results — was CEO Andrew Gould’s lucid overview of the major issues in today’s energy world.

This quarter’s issues included “an acceleration in the decline rate of the existing production base,” inadequate industry investment as a result of the negative effects of shortages of people and equipment, and soft activity in Canada. Remember all three of these issues, but please focus on the first two.

But what does all this mean for Fools in search of energy investments? Again, I have a couple of responses. First, the most recent quarterly results seem to have rendered the big integrated oil companies slightly less attractive than they previously appeared. I’m concerned that the production declines I’ve described in the past may be appearing more rapidly than was anticipated. The producers can’t improve their lots solely on price increases; they need production gains as well, and those gains may be becoming hard to come by.

Motley Fool