quarterly, page-13

From The Sunday Times
August 2, 2009
Shell takes to high seas to escape oil gloom
Turbulent times are forcing energy giants into uncharted waters
........................Solving the fundamental problem of replacing falling reserves is more difficult. Consider Shell. Last year it spent $30 billion on exploration and production, one of the largest investment programmes of any company in the world, while its production fell 5%.

Gordon Gray, an analyst at the broker Collins Stewart, said: “The decline of mature assets is relentless. They are all fighting hard against it but they are approaching it in different ways.” Analysts say, however, that cuts now will only lead to a new oil price spike when the developed economies come out of recession.

Anthony Lobo, head of oil and gas at KPMG, said that in the short term small mergers of, say, £20 billion, and joint ventures with national oil companies (NOCs) are more likely than huge mergers. “The deals of £40 billion or more seen in the last decade are unlikely to happen because one international oil company [IOC] buying another arguably compounds the problem,” he said.

“The magic formula is the combination of cash and reserves. The IOCs have cash and access to debt but the NOCs hold the keys to many of the reserves. As NOCs are not up for sale, we are likely to see international oil companies proposing joint ventures.”

This is because the “easy” oil — on land and in politically friendly regions — is drying up. NOCs own 80% of the world’s reserves, leaving the industry to fight over a shrinking number of fields in hard-to-reach places. Manouchehr Takin of the Centre for Global Energy Studies said: “The IOCs need the NOCs a lot more than the NOCs need them.”

This is why companies such as Shell and Exxon have been increasingly aggressive in marketing their technological know-how. “If you can prove to the Iraqis, for example, that you can get another 10% out of a field, that could give you the edge,” said an industry source.

Companies may also shed older assets or quit entire regions to focus their spending on big-ticket projects that will bring long-lasting production on to the books. Afren, an independent producer in Nigeria, said oil giants were looking at selling 250 fields in the country, which is riven by conflict.
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Note the comment on "Easy" oil.....