NEW YORK, Dec 14: Oil and gas companies dug deeper into their wallets last year to find fossil fuels as firms increasingly turned to new areas to replace supplies, analysts said on Friday.
It’s a mature industry, this is the aging process of reserves, said Fadel Gheit, analyst at Fahnestock & Co in New York. Some companies have not been able to replace (their) reserves because production is on a downward slope, he said.
Finding costs rose by 60 per cent last year, which pushed up reserve replacement costs 36 per cent to $5.31 a barrel of oil equivalent (boe) in 2001, according to a report issued by energy consultants John S. Herold. The report included results from 200 publicly traded energy companies.
Some of the biggest oil companies in the world, including Exxon Mobil Corp, BP Plc and Royal Dutch Shell were among the companies that had trouble replacing their reserves, said Gheit.
The cheapest place to replace fossil fuel reserves is the former Soviet Union, which has huge reserves in Kazakhstan and Azerbaijan. Canada-based Hurricane Hydrocarbons Ltd whose oil production is solely in Kazakhstan, had the lowest three-year reserve replacement costs, from 1999 to 2001, of 61 cents per boe, according to the report.
Russia’s Yukos Oil Co. came in second with three-year replacement costs of 68 cents per boe.
On a regional basis, Africa and the Middle East were the cheapest places to find oil at $3.29 per boe in 2001, the report said.
In North America, replacement costs were “uncompetitive” as as fields mature. Finding costs in Canada were $12.12 per boe, followed by the United States at $9.59 per boe.
Crude oil production in the United States has fallen from more than 8 million barrels per day (bpd) in 1985 to current production of about 6 million bpd, according to the Department of Energy.
Offshore fields such the Gulf of Mexico are younger than onshore fields. But added costs make them not the right field for companies that don’t have the right capitalization to play in, said Irene Hass, exploration analyst at Sanders Morris Harris in Houston.
Oil firms do not report their offshore exploration costs, so it is difficult to break down deepwater exploration costs, she said.
Exploring abroad is cheaper. The most efficient use of capital for energy companies is in the lesser explored areas outside North America and Europe, Nicholas Caccione, a Herold analyst, told Reuters.
Exploration spending in the United States is expected to decline by 0.7 per cent to $30.3 billion next year compared with an earlier estimate of a 7 per cent rise, a recent Lehman Brothers report said.
Contributing to the weak numbers in the United States are a shift to overseas spending by the majors, cautious oil and natural gas price forecasts, minimal growth in cash flow, drops in spending by merchant gas companies and a lack of quality prospects, the Lehman report said.
Gheit said Iraq, which is under threat of attack from the United States if United Nations inspectors find evidence of weapons of mass destruction, would be a logical place in the future for oil companies to try to replace supplies.—Reuters
