Big Oil Companiess Slow New Exploration,OPEC To Dominate -Report

LONDON -(Dow Jones)- Major oil companies are replacing dwindling reserves by acquiring other oil companies instead of exploring for new fields, a strategic shift with implications for global oil supplies, investment bank Credit Suisse First Boston said in a report Monday.

Big Oil Companiess Slow New Exploration,OPEC To Dominate -Report

01-17 05:05: Big Oil Cos Slow New Exploration,OPEC To Dominate -Report

LONDON -(Dow Jones)- Major oil companies are replacing dwindling reserves
by acquiring other oil companies instead of exploring for new fields, a
strategic shift with implications for global oil supplies, investment bank
Credit Suisse First Boston said in a report Monday.
Integrated oil companies are spending only 12% of their total capital
expenditures on finding new oil fields, down from nearly a third in 1990, the
report said. Integrated oil companies like U.S. super-major ExxonMobil Corp
(XOM) have upstread oil exploration and pumping and downstream refining and
marketing operations.
Instead, the sector has replaced more than half of its reserves in the
past five years through buying other companies or revising estimates for how
much oil it can squeeze out of its older fields because of new drilling
technology, the bank said. Fifteen years ago, companies replenished nearly
two-thirds of their reserves through new finds.
No one has yet stepped in to fill the gap left by the retreat of big oil
from its long-standing role pioneering new areas for exploration such as the
Gulf of Mexico or Angola, the bank said. That has left the Organization of
Petroleum Exporting Countries dominating the global oil markets, the bank said.
In addition, with the world’s biggest oil companies convinced exploration
is too costly and risky, the steady of growth of the world’s total oil reserves
has fallen sharply, the bank said. Global oil reserves are being replaced at a
rate of 1.2% a year in the last three years, compared to 2.3% over the last 20
years, even as oil demand growth is hitting new records with China and India
becoming industrial powers, the bank said.
Outside OPEC, the picture is grimmer, with growth flat compared to 0.4%
over the past 20 years.
“If ttrend continues, then OPEC dominance of the global resource base
will not only continue, but increase,” the report said.
OPEC members hold two-thirds of the world’s proven reserves, a position
they exploited last year to help prop up record-high prices by calling for
quota cuts and preventing consumer countries from building up a cushion of oil
inventories.
After a brief respite in December, prices are heading back up to $50 a
barrel on cold weather forecasts in the U.S. and jitters OPEC could cut quotas
again when it meets Jan. 30.
Credit Suisse said acquisitions were a better value then exploring, in
part because of a falling success rate for exploration – highlighting the
dwindling non-OPEC reserves.
“The super majors have also been vocal in suggesting they were not getting
access to good acreage, making exploration spending too risky and without
prospect of an attractive enough return,” the bank said.
The recent bull market run could prod some of the smaller integrated oil
companies such as Norway’s Statoil ASA (STO) and Spain’s Repsol YPF SA (RPF) to
boost exploration as long-term prices assumptions are tweaked up.
In the short term, Credit Suisse sees room for another wave of buying. The
likely targets are American Unocal – already discussed as a possible Chinese
acquisition – Devon Energy Corp. (DVN) and Canadian Talisman Energy Inc. (TLM).
Possible buyers are Italy’s Eni SpA (E), France’s Total SA (TOT) and
Anglo-Dutch giant Royal Dutch/Shell Group (RD SC)
-By Shai Oster, Dow Jones Newswires; +44-20-7842-9357;
shai.oster@dowjones.com

(END) Dow Jones Newswires
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