London-based Evaluate Energy reports that oil and natural gas finding costs for major oil companies are rising again after a temporary lull in 2009, but rising upstream profits have prevented companies' upstream margins from being squeezed.
That lull was brought on by spare capacity in the service industry and recession-induced falls in operating costs, Evaluate noted. With the exception of 2009, per barrel operating costs have risen steadily over the past 10 years.
The majors have been investing heavily in the upstream business both in absolute and relative terms, and have managed to replace over 30 billion barrels of proved crude oil reserves over the past decade. Despite the heavy levels of capital spending, the majors have failed to materially expand either production or proved reserve base during that time.
More than a quarter of the majors' oil reserve replacement since 2000 has been due to acquisitions rather than organic growth such a drilling or improved recovery. In the case of natural gas, a big factor that boosted majors' gas reserves in 2010 was ExxonMobil's addition of XTO's huge U.S. gas reserves to its profits.
"You get the impression the Majors as a group are running hard to stand still," Evaluate noted. "Certainly in terms of crude oil supply they are being marginalized by the NOCs and the hunger for assets shown by China."
Evaluate noted that the majors' promises to investors of increased oil production have not materialized for the group. Surprisingly, BP remains one of the best performing companies in terms of crude oil production and reserve growth over the past decade, even after the Deepwater Horizon disaster and its ensuing sale of assets.
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