Oil Firms Seen Cutting Exploration Spending
Although world oil reserves increased by 1 percent in 2012, they equalled just 52.9 years of global consumption, down from 54.2 in 2011, energy firm BP has said previously. BP sees consumption up by 19 million barrels a day by 2035, which would represent a 21 percent increase on th U.S. Energy Information Administration's (EIA) estimate for 2011.
Energy firms have already been shifting capital from conventional to shale production, and this trend could continue as the exploration risk is smaller, the lag from investment to cash-flow is shorter, and project sizes are more manageable.
This is weighing negatively on the shares of exploration-focused companies.
"Explorer stocks are trading at discovery value or a discount to it, so from an equity market perspective, there's no interest in owning exploration stories. People are losing faith in exploration," said Anish Kapadia, a research analyst at consultancy Tudor, Pickering, Holt & Co. International.
Shares in Europe's explorers fell 20 percent over the past year, underperforming a 2-percent rise by the European oil index .
Tullow is down 39 percent in a year, while peers Cairn and Cobalt are down 33 percent, and OGX is down 92 percent.
The spending cutback also cut mergers and acquisitions activity by half last year, IHS data showed, and plans to boost shareholder returns could shift focus to cooperation rather than fully fledged takeovers.
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