Oil price boom brings some gloom to majors

For years, international oil majors blamed low prices for their inability to invest in hunting for new oil sources.

Oil prices near record highs now should have meant an end to their complaints, but oil majors are finding that high prices are no less of a curse.
Strange as it may sound, oil companies find themselves with lower output as oil prices move higher.

The reason for this may lie in the seismic shift that has been underway in the oil business.

Faced with declining oil reserves and production at home, large western oil firms started venturing out to far-flung lands in Africa and Central Asia with vast reserves of oil but little capital or technical know-how to retrieve it.

Many of them entered into deals called production sharing agreements (PSAs) with local governments, which gave them a share of the revenue from the oil produced denominated in oil barrels.

The rising price of oil has forced most oil firms to jack up the price assumptions that underpin these contracts. Total on Wednesday raised its average oil price assumption to $60 per barrel from $40 previously envisaged.

BP is also assuming a $60 oil price for this year.

“In broad terms, when oil price rises, companies get less actual oil in a lot of deals. The actual revenues may be the same, but the share of the production they have is lower,” said Wardell.

Oil traded above $76 a barrel on Thursday, hovering close to its all-time high of $78.77 hit last month.

Analysts said rising oil prices are hurting international oil majors in other ways too.

Reuters