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Page added on May 27, 2014

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Big Oil Spending More, Getting Less in Production


Despite increased spending, oil majors are seeing flat or declining production as they struggle to replace reserves, according to a recent analyst report.

Exxon Mobil Corp., Chevron Corp., Royalty Dutch Shell plc and BP plc recorded declines in their 2013 production. ExxonMobil reported an average production of 4,175 million barrels of oil equivalent per day (MMboepd), down 1.5 percent from 2012, and Chevron saw its production decline by .5 percent from 2012 to 2013 to 2,597 MMboepd. Shell’s average 3,199 MMboepd of production for 2013 was down 1.9 percent from 2012 levels, while BP saw its production volumes fall to 2,256 MMboepd, or 2.7 percent, from 2012 to 2013.

France’s Total S.A. was the only company to buck the trend in declining production, with average hydrocarbon production in 2013 of 2,299 MMboepd, Zacks Equity research analyst Nilanjan Choudhury said in a May 16 report.

“But overall, most ‘Big Oil’ is suffering from marginal or falling returns even as crude prices stay strong, reflecting their struggle to replace reserves, as access to new energy resources becomes more difficult,” said Choudhury. “As it is, given their large base, achieving growth in oil and natural gas production has been a challenge for these companies over the last many years.”

Rising capital expenses also are hurting the oil majors. Despite capital budgets of anywhere from $25 billion for BP and Total each to the $37 billion and $40 billion that Shell, ExxonMobil and Chevron plan to spend this year, these expenditures are not augmenting output.

Choudhury recommended that oil majors such as ExxonMobil and Shell curb their future spending, noting that indications are appearing that drilling expenditures have peaked, with huge budgetary jumps “likely to be a thing of the past.”

The inability of these firms to generate enough cash from operations to address their rising spending and shareholder payouts has forced most of them to take on more debt.

“Though the situation is no cause for alarm, it does raise some questions regarding the companies’ ability to finance shareholder returns,” Choudhury commented. “Notwithstanding the fact that almost all components of Big Oil hiked their dividends recently, there is no doubt their balance sheets are under pressure from spiraling capital spending and shareholder distributions.”

To maintain production rates, oil companies have had to race to find new reserves faster than the old ones dry up, Bloomberg reported in January of this year. That essentially puts them on a treadmill at which they must run faster just to keep pace – a horrible problem in any business. As a result, majors are making significant investments in costly megaprojects such as Shell’s Prelude floating liquefied natural gas.

The fact that the oil and gas majors entered U.S. shale plays late also has contributed to the problem, according to Bloomberg. Many companies pulled out of the United States to explore in places such as Africa and Asia, leaving smaller companies positioned to acquire North America’s shale assets cheaply. The timing of shale deals has proved difficult for the majors such as ExxonMobil, who acquired XTO Energy Inc. for $41 billion in 2010, right before natural gas prices declined.

Shell announced earlier this month that it would sell its Eagle Ford asset stake to Sanchez Energy. The company has also divested interests in other North American shale plays, with planned divestments for 2014 and 2015 to reach $15 billion, as it seeks to restructure its North America portfolio to enhance profitability.


8 Comments on "Big Oil Spending More, Getting Less in Production"

  1. Kenz300 on Tue, 27th May 2014 6:27 pm 

    It is time for BIG OIL to diversify away from sole reliance on oil to a more balanced energy strategy.

    Oil companies need to change their business models and transform themselves into “energy” companies and begin to embrace alternative energy sources.

    It is time to move “Beyond Petroleum” as BP once said….then forget to implement it.

  2. Harquebus on Tue, 27th May 2014 6:56 pm 

    Most in the energy business are smarter than you Kenz300. Renewable generators do not return the total energy used in their manufacture and construction. If they could and then some, the planet would already be covered in them.
    Get an education mate, you need one.

  3. Makati1 on Tue, 27th May 2014 8:30 pm 

    So the costs are increasing. That only means we are approaching peak oil consumption. Bring it on! The sooner the whole BAU system fails, the more of the earth’s ecology will be left to rebuild by those who survive.

  4. Simon on Wed, 28th May 2014 3:39 am 


    EROEI – is not used to determine profitability so really is not relevant to whether renewables are covering the planet

    Also what figures do you have to backup your assertion on renewable energy forms not returning 100% of the energy used in manufacture and distribution

  5. meld on Wed, 28th May 2014 6:21 am 

    @ Harquebus – this has always been my argument. If renewables are so much better than Fossil fuels then the oil companies would have diversified into them years ago and the oil world would be over with. They know renewables are worth squat and so they are sticking with what they know work, even if it’s for a limited time. They also know that humans will always want oil, even if that oil is $1000 a barrel, someone somewhere is going to pay it so they can jet around the world.

    The future is a place where billionaires still have access to the tech we have today but the 99% collapse into neo feudalism. Then the wars come.

  6. Davy, Hermann, MO on Wed, 28th May 2014 6:37 am 

    Watch out Meld future predicting is hazardess. The best we can do is a range of predictions and short term ones at that. It is reasonable to see warlords, nobles, and strongmen returning in a localized setting with serfs and a small artesian class. I imagine the clergy will remain in some form. I also see large groups like Genghis Kahn fighting and migrating living of the production of others a possibility although in the BAU scorched earth we may not see enough to support large armies

  7. peterjames on Wed, 28th May 2014 8:44 am 

    Meld, I suspect at $1000 a barrel, the list of billionaires will decrease quite considerably. I am going to be sucking up more to my neighbour who has stored 500 cans of baked beans in his back shed, than the “billionaire” down the road who has 500 kilos of gold stored in his back shed, or who has 30 cars in his driveway. Well thats after I break into his house one night, to siphon the petrol from his cars. At $10 for a litre of petrol, I could imagine the function of a car would be severly diminished, you certainly would not leave it unattended at the local shops.

  8. Simon on Wed, 28th May 2014 8:48 am 

    I think we are mixing up profitability with energy returns.

    Whether renewables will exist in a total collapse is also not a function of the energy they create, as there are also a lot of materials involved that may or may not be available, this would determine whether or not they would be widely produced.

    If we look at Libya as an example of mad max’ness, after about a year we already have a consolidation of groups and negotiations going on between them, I suspect a form of plutocracy in the next few years.

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