Oil Investments Outstrip Production Growth
Global energy companies boosted their investments in the upstream business by 31 pct in 2005, but only to achieve a marginal growth in oil and gas production and reserves.
Global spending on exploration and production grew by 66 bln usd to 277 bln usd in 2005 as industry giants like Exxon Mobil Corp, BP PLC and Royal Dutch Shell PLC stepped up their hunt for more resources to meet rapidly growing demand, according to a study published today by US energy research firm John S. Herold Inc and corporate advisor Harrison Lovegrove & Co Ltd.
ยป Source: Life Style Extra
Production, however, inched up by just 1 pct, while reserves went up by 2 pct. In the US, output even fell 6 pct.
Reserve replacement rate continued its decline, reaching 143 pct of production in 2005.
Cost inflation brought about by soaring crude prices was partly behind the spending rise. Finding and development cost increased 26 pct to 11.26 usd per barrel of oil equivalent (boe), while pure finding cost jumped 51 pct to 4.08 usd per boe.
‘The potential for stormy seas looms. Despite a 32 pct rise in wellhead petroleum prices, margins inched up only slightly to 29 pct and the industry continued to labor to grow production and reserves,’ said Arthur Smith, chairman and chief executive of John S. Herold..
‘Costs continued to march upward, with lifting costs gaining 35 pct, while production volumes inched up only 1 pct. Finding and development spending surged 36 pct, but for the second straight year, proved and proved developed petroleum liquids reserves were essentially unchanged,’ he said.
Strong prices lifted companies’ turnover by 37 pct to 699 bln usd, and net income by 44 pct, pushing the industry’s bottom line past the 200 bln usd-mark.
Cashflow increased 32 pct to 322 bln usd, way ahead of the industry’s capital investments.
‘Facing the challenge of diminished material investment
opportunities and abundant cash flows, oil executives found a relief valve by accelerating the level of funds returned to shareholders,’ according the study.
In 2005 alone, companies returned over 120 bln usd to shareholders through share buybacks and dividends. In contrast, they only spent 60 bln usd to replenish reserves through leasehold and exploration activities, it said.
