September 26, 2000
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Despite Price Spike, Oil Firms
Reduce Output, Exploration
By THADDEUS HERRICK
Staff Reporter of THE WALL STREET JOURNAL
Where's the oil?
In past years, companies have scurried to invest in new production during the relatively rare times when the price of crude has climbed above $30. But six months into a price spike, the world's largest oil companies are actually producing fewer barrels a day than last year and spending less on their future growth.
With supply tight and prices high, the focus has been on the Organization of Petroleum Exporting Countries, which is celebrating its 40th anniversary in Caracas, Venezuela, this week.
Oil Rises Hurt Developing Nations Who Are Dependent on Imports
Oil Futures Fall as Dealers React to Plan to Tap Reserves
OPEC has raised production three times this year, and the world's richest nations are continuing to pressure the cartel for cheaper crude, most recently at the Group of Seven meeting of industrialized nations in Prague last week. Meanwhile, the Clinton administration Friday took the extraordinary measure of agreeing to release 30 million barrels of oil from the country's strategic reserve.
Monday, partly in response, the price of West Texas Intermediate crude oil fell $1.30 to $31.43 a barrel.
Gore Shifts Focus
At the same time, though, Vice President Al Gore, the Democratic presidential nominee, shifted the focus. On NBC's "Today" program Monday, Mr. Gore blamed Big Oil for the recent price spikes while defending the Clinton administration's energy record.
Major oil companies, however, say they are producing as much as they can. The 13 biggest, which provide about 17% of the world's supply of 75 million barrels a day, produced about 13 million barrels a day in the first half of this year, down 0.7% from the first half of 1999. OPEC, by contrast, produces roughly 40% of the world's crude oil.
Remembering the oil-price crash of just two years ago, and trying to be sure they will be profitable within a range of prices, major companies are moving cautiously to invest in future production. Exploration and production expenditures at the so-called super majors -- Exxon Mobil Corp., BP Amoco PLC and Royal Dutch/Shell Group -- fell 20% to $6.91 billion in the first six months of the year from a year earlier, according to Petroleum Finance Co., a Washington, D.C., consulting firm
Exxon Mobil Trims Spending
Exxon Mobil's capital and exploration spending fell 32% in the first half, to about $3 billion, partly because the company completed some big projects and partly because it has become choosier. Still, Exxon Mobil said it expects spending to increase during the rest of the year.
Without excess capacity, the companies say that turning on the spigot isn't as easy as it once was. Chevron Corp. is spending in an effort to coax more oil out of wells in the shallow waters of the Gulf of Mexico. But Texaco Inc., which used to rely on U.S. oil fields to increase market share, has been trimming its U.S. assets to concentrate on more distant, more lucrative fields.
"In the United States you have the ability to respond quickly, but not the resource base," says John O'Connor, Texaco's president for world-wide upstream. In places where there is additional oil, the ability to quickly boost production isn't there, he says, maintaining that industry-wide, "there are no taps that are not open."
Analysts expect new taps eventually, but not quickly. Most major integrated oil companies, which raised production when prices were stable between 1995 and 1998 and then cut back drastically when prices fell in 1998, are expected to increase exploration and development spending by a modest 10% to 20% in the coming months. It will take additional months for that spending to bear new crude oil.
Singing Low-Price Blues
Many are still stinging from the low prices of just 18 months ago, and insist that their production must be profitable at $14 to $16 a barrel, regardless of current prices. Indeed, until just recently, BP Amoco developed most new projects based on $11-a-barrel oil, a figure it has since raised to $16.
In the past, "we have been severely burned" for pouring money into big projects in hopes of high prices, says Archie Dunham, Conoco Inc.'s chairman and chief executive.
With the majors holding tight, the independent oil companies are trying to fill the void, increasing their budgets 30% to $12.94 billion after sizable cutbacks last year, according to Salomon Smith Barney. But most of that spending is earmarked for natural gas to meet the nation's gas-fired energy demands.
The big players, meanwhile, are using their cash to buy back shares of their own stock. BP Amoco plans to spend $20 billion to buy its shares, while analysts expect Exxon Mobil to shell out some $30 billion.
"The industry realizes drilling more holes is not going to attract more investors," says Fadel Gheit, a senior analyst at Fahnestock & Co. in New York. |
