Slumping Output Raises Tough Questions for European Oil Giants

- Slumping Output Raises Tough Questions for European Oil Giants

Monday, August 01, 2011
Dow Jones Newswires
LONDON
by Alexis Flynn

When Europe's major oil companies reported quarterly earnings last week, headlines across national capitals once again excoriated the petroleum giants for soaring profits in the face of consumers anger at high fuel prices.

Yet the profits couldn't mask a trend that continues to trouble Wall Street and corporate boardrooms: Nearly every major oil company reported year-on-year oil and gas output declines, often in the double-digits.

Big Oil is throwing huge resources at the problem with more open embrace of unconventional petroleum developments, high-risk exploration in frontier areas and corporate restructuring. But even if these strategies work in some cases, there is little doubt that anemic petroleum output signals a long-term challenge confronting the sector.

The particulars varied across the sector. BP's 11% output drop was fueled in part by the continued hit from its reduced activity in the U.S. Gulf of Mexico after last year's disastrous spill. Italian giant Eni's production fell 15% due to its disproportionate exposure to war-ravaged Libya. Spain's Repsol, whose output fell 17%, was affected by both Libya and the U.S. Gulf, as well as by labor unrest in Argentina. Norway's Statoil saw a16% output decline largely on production outages and maintenance in its home market in the North Sea.

Oil giants are more vulnerable to operational problems in part because of their declining dominance over key resources. Whereas in 1973, independent oil firms controlled three-quarters of the world's reserves, they hold as little as10% today, according to some estimates. That has forced oil majors to rely to a greater extent on costly unconventional plays such as shale gas, deepwater exploration, and Arctic exploration.

Investment in conventional assets accounted for 63% of the majors' total capital expenditure between 2001 and 2005, research by Wood Mackenzie showed, with this proportion set to fall to 40% between 2011 and 2015.

Last week's reports showed that the two biggest oil giants, Shell and ExxonMobil, were somewhat better positioned than their smaller peers, in light of their capacity to progress capital-intensive projects. Another standout, Wall Street darling BG Group, the only European oil major to report higher year-on-year output, has prospered from recent discoveries in the hot Brazil offshore region.

Yet there are problems even with these templates. Though demand for natural gas remains solid, natural gas prices could see further weakness in light of surging North American shale gas output and economic weakness in Europe and the U.S.

The push for more exploration has ignited interest in Africa following new seismic results and recent discoveries in Ghana and Uganda. But it's a risky and capital-intensive game and one requiring a fleetness of foot to grasp opportunities and adapt quickly to contrary political circumstances. Industry anecdotes abound of how some of the most lucrative recent discoveries on the continent were once passed up by reluctant majors.

Consolidation offers another way forward, yet few expect large corporate mergers between integrated oil giants in light of antitrust concerns and today's high oil prices. More likely is a deal akin to Exxon's purchase of U.S. unconventional gas specialist XTO, a major factor in Exxon's standout 10% rise in production in the quarter. Wood Mackenzie's Simon Flowers predicts more such "infill acquisitions," but says "large-scale acquisition is not likely in the near term."

Another possibility is the flowering of deals between private oil giants and emerging state-controlled firms like Brazil's Petrobras, Russia's Rosneft and China's CNPC. BP's failed share swap and Arctic exploration deal with Rosneft was an example and illustrates the lengths to which companies are prepared to go to gain access to their potentially lucrative reserves.

Wall Street will likely push harder for some sort of tangible action from Big Oil in the coming months. The sector trades at a significant discount to the oil price itself, a factor that could sharpen calls for share buybacks and more special dividends. The recent move by ConocoPhillips to hive off its downstream business lifted the Texas company's share price and spawned questions for the rest of the sector. But so far, most of Conoco's peers have dismissed the idea as impractical in light of the advantages of the conventional integrated model.

Copyright (c) 2011 Dow Jones & Company, Inc.

Oil & Gas Post

Promote Your Page Too
LINK

European Shale Gas Is Still Hot Air

- European Shale Gas Is Still Hot Air

Tuesday, May 31, 2011
Dow Jones Newswires
by Andrew Peaple

Shale gas has been a game-changer for U.S. energy markets. Following an estimated $250 billion of investment, 23% of US gas production now comes from rocks several thousand meters underground, up from 1% 10 years ago. Could Europe see a similar shale gas revolution?

That seems unlikely for the moment. True, Europe could have 639 trillion cubic feet of shale gas, only 25% less than the U.S., according to the U.S. Energy Information Administration. That could reduce its reliance on gas imports and more polluting alternative fuels. Around 50 companies are exploring for gas now, from majors like ExxonMobil to small independents.

But European shale gas is likely to be much more costly to develop. European shale depths are on average 1.5 times lower than in the U.S., according to the Oxford Institute for Energy Studies. Europe's dense population doesn't help, as the number of wells needed for commercial shale gas production requires lots of space. Drilling costs are also likely to be higher in Europe, given the lack of a high-tech services sector to support the industry.

Meanwhile shale gas faces opposition from environmentalists who fear the extraction process could damage water supply. France is close to banning activity, despite having substantial potential reserves. Production costs could be as high as $16.2 per thousand cubic feet (mcf), according to OIES. That compares with the $8.7 per mcf Gazprom, Europe's main gas supplier, charged for contracted gas in 2010. Existing gas imports from Russia and Africa cost between $3 and $6 per mcf, while US shale gas production costs are around $3 per mcf.

Clearly, the outlook for shale gas would improve if gas prices rise. But few expect them to rise high enough to make European shale gas profitable; Bernstein Research expects prices to reach $13.8 mcf by 2015 while Wood Mackenzie expects oil-linked gas prices to rise to only around $11 per mcf by 2025. And in the U.S., the shale gas supply shock has seen prices fall rapidly, meaning producers' returns on investment are in single-digits now, according to TPH.

Europe's shale gas revolution may be a long time coming.

Copyright (c) 2011 Dow Jones & Company, Inc.

Oil & Gas Post

Promote Your Page Too

Spatial Energy Spins Off European Subsidiary

- Spatial Energy Spins Off European Subsidiary

Monday, May 23, 2011
Spatial Energy

Spatial Energy announced the opening of a European subsidiary. Spatial Energy made the announcement at the 2011 EAGE (European Association of Geoscientists and Engineers) Conference & Exhibition in Vienna, Austria.

Chris Carlston, co-founder and Vice President of Sales for Spatial Energy in Boulder, Colorado, USA, has accepted the new position of Managing Director, Spatial Energy GmbH, which will be based in Vienna. Spatial Energy GmbH is the fourth global office opened since the parent company's founding in 2005.

With increased interest in oil and gas exploration and production, including activity in Africa, as well as in shale gas plays in Eastern and Western Europe, Spatial Energy made the strategic decision to focus on building and strengthening relationships with key EAME energy companies. By establishing an office in Vienna with one of its key principal executives, the company is able to provide dedicated sales and support for customers and partners in key markets throughout the Western and Eastern Europe, Africa and the Middle East (EAME).

"Long term customer relations and service are a critical part of our success. As our customers expand their operations globally, a subsidiary in Europe is our logical next step," said Bud Pope, President, Spatial Energy. "We see Europe and Africa as strong growth markets where the concept of enterprise imagery hosting and management is catching on fast. We're dedicated to ensuring that our current and future clients can rely on our remote sensing expertise no matter where their business takes them."

Carlston stated, "More and more, oil and gas companies are beginning to understand the value of integrating disparate spatial data sets and making them more accessible throughout their organizations. They also place a high value on service and support, which is the hallmark of our company. I look forward to serving the EAME market with the leading enterprise imagery and data management services to the Energy sector. With our global remote sensing applications and analytical offerings, and now with the opening of the Vienna office, I'll be able to provide our global customers with the consistent, personal attention they deserve."

Oil & Gas Post

Promote Your Page Too

French, US, Canadian Oil Ventures in Libya

French, US, Canadian Oil Ventures in Libya

Thursday, April 14, 2011
Deutsche Presse-Agentur (dpa)

Three Libyan oil ventures involving French, US and Canadian companies had their assets frozen by the European Union on Thursday, as it issued a fresh round of sanctions in a bid to increase pressure on the regime of Moammer Gaddafi.

Sanctions against a total of 11 Libyan energy firms came into force Thursday.

The three joint ventures are between Libya's National Oil Corporation and France-based Total, and the US-based Occidental Petroleum Corporation and Petro Canada.

The other companies targeted by the sanctions are all subsidiaries of the National Oil Corporation.

These sanctions add to the 16 energy companies already placed under sanctions, implementing a "de facto oil and gas embargo," said German Foreign Minister Guido Westerwelle on Tuesday while announcing the extra sanctions.

The EU also froze the assets of 15 other Libyan companies, including banks, investment firms and Libyan Arab Airlines, which is owned by the Libyan government.

Libya's ambassador to Chad and the governor of Libya's southern Ghat district were also hit with travel bans and asset freezes for recruiting mercenaries to support Gaddafi's regime.

Some two dozen people, including Gaddafi, his relatives and close associates, had earlier been targeted by EU sanctions.

One, however, had his travel ban and asset freeze lifted on Thursday, former foreign minister Musa Kusa, who had been defected on March 30, in Britain.

Industry Leaders Warn of Skill Shortage in O&G

Industry Leaders Warn of Skill Shortage in O&G

Friday, April 01, 2011

GL Noble Denton

A group of European oil and gas industry leaders have agreed that 2011 will see a positive upturn in investment into the sector, but warn that they still face significant challenges if they are to take advantage of the strong growth opportunities ahead of them.

The comments were made at an exclusive round table event organized by GL Noble Denton, the leading independent technical adviser to the oil and gas industry, to discuss key findings from a recent report on the future of the sector from the Economist Intelligence Unit. The event, which was held in London, was attended by more than 25 of Europe's oil and gas industry leaders.

The report, which was sponsored by GL Noble Denton, comprises the views of nearly 200 board-level executives and policymakers on a range crucial industry affairs, from new investment opportunities to future regulatory challenges and the rise of a new breed of 'internationalized' national oil companies over the next decade.
Each of the participants at the round table discussion - including representatives from well-known oil companies, energy distribution
corporations, technical suppliers and industry associations - offered strong opinion on where the industry is heading and the challenges that await.
Key findings from the discussion were:

• More needs to be done to develop the next generation of oil and gas professionals. Faced with a period of investment and expansion, the sector will come against challenges as a result of its failure to attract, recruit and retain highly talented people. The industry needs to work more closely together to address the skills problem, rather than trying to pursue each others' technical staff. With activity set to rise in the sector, companies need to focus on introducing and developing technical resource now, ensuring that the right talent is in place for the future.
• Increased regulation post Macondo should be "non prescriptive." While the majority of attendees agreed that government regulatory intervention in North America may leave the small players struggling to survive, none thought that the industry should be left to self-regulate; indeed the majority felt that the US should follow the non-prescriptive approach taken by European and other governments following the Piper Alpha disaster in 1988.
• In these instances, governments restructured their approach to offshore oil industry regulation completely by separating the regulator from the commercial operators, asking them to identify and reduce risks to "as low as reasonably practicable" and justify their actions to the an independent regulatory regime.
• Natural gas prices set to rise. Respondents to the Economist Intelligence Unit's research on the outlook for the sector agreed that the emergence of unconventional natural gas sources has caused gas to gain widespread credibility as a low-carbon "transition fuel", especially for electricity generation. Participants in the round-table discussions generally agreed that the industry will experience an increase of at least 10% in gas prices over the coming years, fuelled by the increasing demand for energy in Asia. While some attendees felt that unconventional natural gas' position as an industry "game changer" in the Economist Intelligence Unit report may be overstated, others agreed strongly with the study that gas will play a key role in the transition to greater dependence on renewable energy sources.
• Cautious optimism for the future. In the Economist Intelligence Unit's 2011 report on the outlook for the industry, executives expect to see an upturn in investment into the sector, despite fears of tougher regulation and a more costly operating environment. While this feeling of cautious optimism was matched at the round-table discussions in London this month, it was also clear that the industry still has hurdles to overcome if it is to take big steps forward.

"It is clear from the these round-table discussions that the oil and gas industry is focused on its future challenges and understands the need to find more innovative solutions to operating more efficiently and sustainably," said John Wishart, President of GL Noble Denton, who hosted the event.

"But in the face of uncertainty about the impact of post-Macondo regulation, anticipation over the true role of natural gas in future
energy economics and ambiguity over resourcing future projects, the oil and gas industry finds itself holding its breath over how these tough challenges will come to pass."