By: Mr.Fog on Giovedì 16 Settembre 2004 16:20
Oil profits increase, but output falls
Sep 16, 2004 (Tulsa World - Knight Ridder/Tribune Business News via COMTEX) -- Producers say they're facing higher risks and more obstacles in developing oil fields.
Most oil companies reported substantial gains in earnings for the second quarter, thanks to oil prices that have held steady at high levels for more than a year.
But the improved financial results may be masking a dark trend in the industry: Although major oil companies are making more money from higher prices, they're producing less oil.
ConocoPhillips earned $2.1 billion in the second quarter -- a 75 percent increase over last year -- but produced 5.6 percent less oil. ChevronTexaco's profits more than doubled -- rising to $4.1 billion -- while oil production fell 1 percent. And Royal Dutch/Shell, which reported a 5 percent decline in oil production, saw profits soar 5 percent to $4 billion.
The drop in production stems from a lack of investment, not a lack of supply, said Dennis O'Brien, director of the Institute for Energy Economics and Policy at the University of Oklahoma.
"There's a lot of crude oil out there that could be available if the investment were put in place," he said.
Major oil companies are producing less oil because they face higher risks and more obstacles in developing the world's oil supplies, and they're wary of making huge investments, O'Brien said.
In addition, available oil supplies are deeper, further offshore and in areas where civil unrest and political uncertainty threaten oil-field development.
"It's much more difficult to find the kind of projects that were available 20 years ago," O'Brien said.
Major oil companies have tightened their spending belts and "are not as anxious to go out and take the risks they took some years ago," he said. "They look much more carefully at the economics of every project."
Meanwhile, OPEC decided Wednesday to increase production by 1 million barrels a day in hopes of bringing down high oil prices. But analysts downplayed the move because the Organization of Petroleum Exporting Countries is already producing as much oil as it can.
OPEC agreed to raise output from 26 million barrels a day to 27 million barrels, but the 11-nation cartel has been exceeding its quota for months and is already producing 27.4 million barrels a day to meet the world's growing thirst for crude.
OPEC's decision won't change the fundamental balance of supply and demand, said Dobie Langenkamp, director of the National Energy-Environment Law and Policy Institute at the University of Tulsa.
"Most people don't believe OPEC has a lot of spare capacity," Langenkamp said. "But the fact that OPEC is attempting to moderate the price shows a desire to maintain a price that does not depress Western economies."
The price of oil fell 81 cents Wednesday, closing at $43.58 a barrel on the New York Mercantile Exchange.
World oil production has remained flat this year, but demand is skyrocketing because of strong economic growth in China and India. As a result, the industry is struggling to meet demand, and excess production is razor-thin.
China's oil imports for the first six months of 2004 were up 35 percent from the same period last year, according to the International Energy Agency's latest Oil Market Report.
Stephen Leeb, a New York money manager and author of "The Oil Factor," says rising demand will push oil prices to $100 a barrel by the end of this decade.
"The world is fast approaching a massive clash between demand for oil and our ability to meet that demand," Leeb writes. "And there is no question that oil prices will rise dramatically over the next decade."
But supplies are plentiful, Langenkamp said. It's the political, social and economic barriers that are preventing big oil companies from ramping up production.
Iraq is a good example, he said.
"If Iraq were stabilized, most people think it can produce 2 million or 3 million more barrels (a day) in four or five years," Langenkamp said. "Three million barrels would have a dramatic impact on the price."
Also, oil companies are reluctant to make investments in exploration due to fears of a sharp decline in prices.
"They've been burned before," Langenkamp said. "If oil companies had confidence in $40 oil, we would see a substantial increase in development and production."