ExxonMobil, Royal Dutch Shell, others not disappearing soon

Implications: Jad Mouawad in New York reported in the August 19 issue of the International Herald Tribune that all seven of the major oil companies were producing less oil than before. Politics plays a part. The terms of foreign concessions in Asia and South America have become more onerous with more oil to the state and less to the companies. Surging fuel prices are blamed on the oil companies. But the primary factor is that oil companies no longer have the international influence of old. Amy Myers Jaffe at Rice University says the industry is in crisis. The production shortfall became evident during the latest quarter. The seven publicly traded major oil companies including ExxonMobil reported that total oil output was down by 650,000 bbl/day. In the 1970s, the oil companies controlled over 50% of production. Today they control 13%. The 10 largest producers now are national oil companies. But the Western companies are far ahead of them in new technology.

Analysis:  One reason for production declines in crude oil is that more and more of the oil company budgets are going into the natural gas side of the business. It is true that much of the landscape where the Western companies operate has been thoroughly explored meaning that whatever resources they find will be far less than what has been found before. Major companies are moving into Canadian oil sands. They are active in Russia with a number of redevelopment projects as well as frontier projects like Sakhalin Island in Russia’s Far East and the Shtokman field in the Barents Sea. As regards ExxonMobil in particular, this second half of 2008 should see an improvement in production as a result of bringing the Kizomba C Saxi/Batuque field offshore Angola on stream in August. At full operation, this field will add 100,000 bbl/day. Kizomba C-Mondo came on line last January and will add another 100,000 bbl/day at peak production. Chevron just announced that oil was flowing from Agbami field offshore Nigeria in July at 100,000 bbl/day. This will increase to 250,000 bbl/day by the end of 2009. So while it is certain that all oil producers will struggle with declining production from older fields, much oil still remains to be found and the Western majors will find it. As a final point, consolidation in the industry is far from over. Some of the second tier producers will ultimately be bought up by the majors. Murphy Oil, Occidental Petroleum, Marathon and Anadarko all fall into this category. Quite some long time will pass before the majors go out of business.