Big Oil Leaders Bet on Long-Term Energy Growth

HOUSTON (Dow Jones Newswires), Feb. 11, 2009

In the eyes of some Big Oil executives, the bulls are still alive.

The captains of BP PLC and Royal Dutch Shell addressed the Cambridge Energy Research Associates conference in Houston with an optimistic message: Their fundamental assumptions for long-term growth in energy demand remain unchanged, despite the precipitous drop of energy prices in recent months. And the industry better continue investing to be ready when demand comes roaring back.

"The future is not canceled," said BP Chief Executive Tony Hayward.

Energy demand "will double between now and 2050" as the developing world becomes richer, said Shell Chief Executive Jeroen Van der Veer. The "art of today is how you can invest throughout the cycle," he said.

Executives and policy makers have raised concerns that the industry is setting itself up for a repeat of the last boom-and-bust cycle. Sharp cutbacks in the 1980s were partly responsible for the sustained rise in oil prices that began in early 2002 and ended in July 2008 at a peak in excess of $145 a barrel.

But keeping a steady hand is hard. Tight credit markets and evaporating cash flows limit the possibilities for investment for many oil and gas companies.

"The whole trick is figuring out how to keep up your investment level when you are under attack from costs and the drop in commodity prices," said Bob Fryklund, a consultant with IHS Inc. (IHS), which owns CERA.

Big Oil executives argued on Tuesday that a way to keep their operations profitable is to exert pressures on costs. "I remember a time when I thought that $40 [per barrel] was a fantastic price" for oil, said BP's Hayward, adding that oil companies allowed costs to get out of hand in a mad rush to develop new fields.

Now "there's an opportunity to reset the cost base," he said.

Lower costs for steel and construction materials should allow a dip in services costs. But tough negotiation tactics also play a role. Andrew Gould, the chief executive of oilfield services firm Schlumberger Ltd. (SLB), said that producers are being "more or less brutal in the way they approach this, and they will attain lower costs."

Schlumberger, the world's largest oilfield services provider, will continue spending in research and technology acquisitions during the downturn.

"Consolidation at the time of a downturn provides the opportunity to renew the fleet and prepare for the next period of growth," Gould said.

As costs readjust, a stable price of $50 a barrel of oil could lead to "plenty of activity," Gould said.

Executives on the refining and marketing side were less buoyant, though. Refining profits have suffered badly from the collapse in demand for gasoline. "The era of comfortable margins is over," said B.N. Bakapur, the director of refining for the Indian Oil Corp.


When energy prices began climbing in 2003, many different sectors of the industry became increasingly confrontational with each other.

The governments of oil-rich countries clamped down on private investment, raising taxes and royalties everywhere from Venezuela to the U.K.

International oil companies -- themselves under heavy criticism from environmentalists, consumers, and Congress -- clamored for access to forbidden tracts of land in North America and loudly complained about the growing fees of services firms.

But at the CERA conference on Tuesday there was increasing talk of uniting in order to survive the downturn.

China National Petroleum Corp. Vice President Jiping Zhou said his company "hopes to join hands" with national oil companies, international oil firms and services firms "to go through the temporary difficult time."

BP's Hayward said that "satisfying future demand will require partnerships between national oil companies and international oil companies, between governments and corporations, and between academia and industry."

Hayward also seemed eager to join the U.S. administration's quest to reframe the country's energy landscape.

"I think we have a great moment here, a real opportunity to work with President Obama and the Congress to craft a comprehensive national energy policy," he said.

Copyright (c) 2009 Dow Jones & Company, Inc.


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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
S. Rajagopalan | Feb. 16, 2009
I think the oil price is going to rise in a slow phase and reach 60-65 US $ / bbl by this year end. In my cash flow analysis I considered oil price as 65 US $/bbl even at the peak oil price of 145 US $ / bbl in July 2008.

Richard | Feb. 14, 2009
People are angry at big oil for making huge profits. If we want to get the economy moving our governments should allow more drilling, give big oil more incentives, to drill and get the people back working.

Valerian Popescu | Feb. 13, 2009
Oil at least $40.00 a bbl is reasonable and companies will survive.The pollution and interests will decrease.

Poor Oilfield Worker | Feb. 13, 2009
I will never be able to figure out how we have all this oil here in the United States to drill and we keep buying it over seas and making the Saudis richer and richer. And we opened up all that new water in the gulf for what? Now we are all getting laid off of our jobs that we have had for years. What is wrong with this picture?

L. Cline | Feb. 12, 2009
As a former drilling consultant for Shell here in Canada, I think this is wishful thinking. Van der Veers email of gloom for the future sent at Christmas is more accurate than his hype and hope. I think this depression all over the world is just a taste of the full meal deal to come. I saw 1980 and the collapse of the patch here in western Canada but this is seemingly much deeper. Good luck in your job searches riggers and service hands! I for 1 am not renewing my 2nd line.


Disheartened Rigger.

Umi | Feb. 12, 2009
I think, we should continue to forge forward as demands for oil and gas will never expire.

Simultaneously, oil and gas industry will practice safe and environmentally friendly atmosphere. I believe, this is not difficult to achieve as strong measures have already taken place. What with better research and technology of the 21st century - Nothing is impossible!!

You have my personal vote on this!

Umi Yamaguchi, Singapore

Project Administrator/DC/rig coordinator

Robert Stephens | Feb. 12, 2009
I completely agree with James Baker, well said and I have to say, the other statements are accurate as well. They ALL bring about the SAME message.....*ATTENTION POLITICIANS* WE, that includes me, I'm in safety, an HSE consultant that works for different consultant companies and work for numerous oil and gas companies....I too say, the Republicans SAY and the AMERICAN PEOPLE say (I've seen it on national TV about all the oil and gas here in our country) DRILL HERE DRILL HERE......Politicians and the PRESIDENTS, yes plural sss we N E E D T O S T O P R E L Y I N G O N F O R I G H N O I L!!!!!!!!! When are you all going to wake up and smell the coffee!!!!! Oil jobs brings BIG money, not only to the oil companies BUT to the oil workers and their families. Plenty of oil and gas to last this country for dozens of years. STOP PREACHING and DO something about the situation at hand NOW. I for one am getting tired of all the political talk through the side of their MOUTHS. It's not that hard, it's very simple. WE HAVE BEEN DOING IT FOR YEARS, drilling some and capping some. STOP SENDING BILLIONS AND BILLIONS OVER SEAS...............DO IT HERE AND NOW. GET THE PEOPLE BACK TO WORK.......ENOUGH ALL READY.


A concerned citizen and fellow oil and gas hand for a BETTER AMERICA and ITS FAMILIES.

Robert Stephens

Heather | Feb. 12, 2009
My husband is a directional driller and he isn't working. His company had to shut down one office and are just trying to rotate people around enough to get a little time in here and there.

Toby | Feb. 12, 2009
I tend to agree with James Baker. It seems that the oil & gas industry leads in progress and decline. Once drilling activities cease, loss of jobs trickle down in many other phases of the economy. All related oil & gas services start to shut down, then sales in homes, furniture, autos, and really everything else slows down. If people do not have money to spend, then suppliers can't sell their products. The entire economy fails. Mr Obama does not seem to understand the picture. Coal can not replace all the products that oil & gas produces.

James Baker | Feb. 12, 2009
I think shutting down our oil rigs is going to hurt our country substantially. We are trying to keep our country from relying on foreign oil. Not only that, shutting us down has led to more job loss. Starting with drilling, it then works its way down to water haulers, casing services, mudders, salesmen, suppliers, everything. Our communities suffer because they are getting the tax revenue from these oil and gas companies now. Now, we are forced to shut down and go from high paying jobs to living on unemployment which is a joke, asking for food stamps, heating assistance, medicaid, etc. Something has got to give here. We need the oil and gas industry to keep producing. Our heating bills are the highest they have ever been this winter. But yet they say natural gas is the lowest it has ever been. Wake up all you lawmakers, and see the real picture -- and much more you are hurting the economy by shutting us all down!

John Symons | Feb. 12, 2009
Other things being equal, a reduction in crude oil prices leads to an increase, not a reduction, in refining profits. Petrol prices in the UK, before duty and VAT, appear to be merely tracking crude oil price changes, if that. There is no sign of a collapse in petrol demand here.

My main concern is that for many years there has been a market failure to provide diesel at a price consistent with the value of its feedstock. Diesel can be blended from naphtha, kerosene and gas oil fractions whereas petrol cannot be made from the (normally) lower value kerosene and gas oil.
Thus diesel should ideally have a market price lower than that of petrol, not higher. I hope that Total's Lindsey Refinery expansion permits a major increase in UK diesel production.

Atul M. Mulkar | Feb. 12, 2009
I think the price of oil is at the reasonable level. Just a few years of spurt in price does not justify the claim that the price has gone down hence no more investment in this sector. In fact Oil Companies should invest more and get the best for the price that they would pay.

To fight the recession some one will have to invest. If Government and Government run institutions shy away from the investment at this moment then for sure we are going to have a bad time for a long period.

Mario Perez | Feb. 11, 2009
Oil has to be at least $70.00 a bbl for small companies to survive this down turn in oil prices and keep people on payroll; or we'll all be on welfare.

Changxu Sun | Feb. 11, 2009
Martin, I agree with you. It seems that the oil industry is the least hit by the crisis. Our jobs are more secure than other industries, I think. But the question is how can these oil companies survive the tight cash chain? Merging would be a choice, but the it seems there are a small amount of middle-to-big companies which could be involved. I think if the oil price remains 40 to the end of the year more companies would go bankrupt. Only big companies could stand not cutting technical people.

Alfredo Garcia Jr. | Feb. 11, 2009
I am (was) in the oilfield until I got laid off here this past week. People need to do something, hands work hard to keep their jobs. As soon as slow times hit, we are the first to go. Without the hands, office people are nothing. We are the backbone of the oilfield but all the big wigs are worried about are themselves and we suffer. Drill, Drill, Drill, we want our jobs back. Thank you.

J. | Feb. 11, 2009
I work for Weatherford and it's getting a little scary around here. I also agree with Mr. Schutte, as a technician now is the time for more training, because when it picks up again all we will have time for is to push, push, push to get tools out to the field.

Martin Schutte | Feb. 11, 2009
The late boom in oil prices should teach the industry to maintain a positive attitude towards all the employees. During the last downturn many left the industry and found other employment, never to return. All the training was done in vain. Young, promising technical people became disillusioned with the industry. Consistent growth is the key, even at a lower rate. During the downturn, the emphasis should be in training and not employee reduction. We need keen, young and enthusiastic technical persons to carry on with the experience that they can gain from more senior colleagues.

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