Exxon Mobil Corp.
, BP Plc and Total SA are investing in assets that previously weren’t
worth their time or money after oil-rich nations reduced access to reserves and
exploration drilling faltered.
Efforts to find new sources of
crude and natural gas are failing more often, with San Ramon, California-based
Chevron Corp.’s exploration
failure rate jumping to 35 percent last year from 10 percent in 2008. Countries
such as
Venezuela
are making it more expensive for companies to develop their resources, if
they’re allowed in at all. And previously developed fields are drying up,
reducing oil companies’ future supplies, or reserves.
“Their No. 1 problem is reserves
replacement,” said
Nansen Saleri
, chief executive officer at Quantum Reservoir Impact in
Houston
and former reservoir-management chief at
Saudi Arabia
’s
state oil company. “That’s the elephant in the room, so that’s what they have
to address.”
To compensate, major producers are
investing in projects they once eschewed, including geologically complex oil
and gas fields, called “unconventional” by the industry to distinguish them
from the easy-to-get oil and gas of earlier years.
Irving, Texas-based Exxon agreed
to buy gas producer
XTO Energy
Inc. for $29 billion in
December, 14 months after abandoning its own drilling program in
Texas
’s Barnett Shale
unconventional gas formation, where XTO gets more than 20 percent of its
output.
BP
, Total and Statoil ASA bought into
U.S.
shale-gas joint ventures, and Marathon Oil Corp. and ConocoPhillips are
investing in unconventional gas in
Europe
.
More Acquisitions
Integrated oil companies announced
almost $100 billion in acquisitions in the past year, up 53 percent from the
preceding 12 months, according to data compiled by Bloomberg.
The low-cost, high-profit
resources of the past are disappearing, said
Ted
Harper, who helps manage about $6 billion at Frost Investment Advisors in
Houston
.
“You’re looking at a higher initial investment and a relatively more-muted return
on invested capital relative to what you were to find 10 or 20 years ago,” he
said.
Exxon sought last year to buy
closely held Kosmos Energy LLC’s
Ghana
assets, including a stake in the offshore Jubilee field, valued at about $4
billion. Major oil companies had chosen years earlier not to invest in the
project, said Anadarko Petroleum Corp., a partner in Jubilee based in The
Woodlands,
Texas
.
Risk Appetites
Those companies are now pursuing
West Africa
fields that
previously didn’t meet their criteria for potential profits relative to risk,
Anadarko Chief Executive Officer
Jim
Hackett said in a March 3
interview. Independent producers, which are typically smaller and don’t own
refineries or chemicals plants, have a different risk profile, Hackett said.
“We didn’t have the same portfolio
that they may have had, so our tolerance for something new was probably a
little greater than theirs was,” Hackett said.
Investments by Exxon, London-based
BP,
France
’s
Total
,
Norway
’s
Statoil
and Royal Dutch Shell Plc of
The Hague
in shale formations mark “a change in the model” after major producers cut back
U.S.
onshore projects decades ago, Hackett said.
Advances in drilling showed the
big oil and gas companies that shale projects, where rocks are fractured to
make gas flow, contain enough gas to increase reserves and can be developed
around the world, Hackett said.
Doubling Reserves
Shale projects enabled independent
producers such as Fort Worth, Texas-based XTO and
Chesapeake Energy Corp. of
Oklahoma City
to double reserves and production in five years while output slid at major oil
companies. Independent producers in the Standard & Poor’s 500 index are
outperforming their integrated counterparts again this year after rising 41
percent, versus a 4 percent decline for the majors, last year.
Houston-based
ConocoPhillips
forecast that its output will drop 2.7 percent this year as Chief
Executive Officer
Jim Mulva seeks to sell $10 billion in assets
under his plan to “shrink to grow.” The company’s exploration failure rate rose
to 43 percent last year from 32 percent in 2008.
“They don’t do exploration well
anymore, or at least they don’t want to,”
James Halloran
, a consultant at Financial America Securities in
Cleveland
,
said of major oil producers.
Exxon
said in October 2008 that it sold stakes in gas fields and a pipeline in
the Barnett Shale. The decision came after gas prices dropped by almost half in
three months.
Gas Shift?
Leaving the Barnett didn’t
indicate any shift in the company’s interest in
U.S.
gas projects, Exxon spokesman
Alan
Jeffers said. He said Exxon
kept a strong presence in areas such as
Colorado
’s
Piceance
Basin
, where the company has an unconventional gas project.
Exxon forecasts faster demand
growth for gas than for other major energy sources because supplies are ample
and gas has lower emissions when burned than oil or coal, Jeffers said.
BP
,
already the largest natural-gas producer in the
U.S.
,
said in a March 2 presentation that the heating and power-plant fuel will be a
key source of growth for the company in the second half of this decade.
Total said in January it would
spend as much as $2.25 billion for a stake in
Chesapeake
’s
Barnett Shale assets. The deal provides a chance to learn about shale gas and
will continue to produce for many years, said
Phenelope
Semavoine, a Total spokeswoman.
Fields that were long ignored also
are getting a fresh look. Exxon said in January that it will inject nitrogen
and other gases to revive production at the Hawkins Field, a development east
of
Dallas
that started pumping oil 70 years ago. Gas injections will force crude
to the surface, squeezing an additional 40 million barrels of oil out of the
field and extending its life by 25 years, Exxon said.