NOW READ OUR ARTICLES IN 40 DIFFERENT LANGUAGES.
HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PETROLEUM NEWS BAKKEN MINING NEWS

SEARCH our ARCHIVE of over 14,000 articles
Vol. 10, No. 21 Week of May 22, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

High oil prices fail to spur investments

Restrictions deter energy industry from investing in new oil and gas production; barriers must fall to prevent reserves shortage

Rose Ragsdale

Petroleum News Contributing Writer

Energy companies may be under-investing in new oil and gas production worldwide, but don’t blame the companies. Blame the governments and countries around the globe that are raising new barriers to investment, oil industry executives said May 11.

The comments followed the International Energy Agency’s announcement May 5 that energy companies are under-investing in new oil and gas production capacity worldwide by up to 20 percent.

IEA, the world’s energy monitor, said not enough capital is being invested in new oil supplies to meet a projected 53 percent leap in demand to 121 million barrels per day by 2030. Some $16 trillion in investment will be needed in the energy sector by 2030, the agency said.

The world’s oil resources will be adequate through 2030 and beyond, provided new reserves are proved up, but less certain is whether sufficient investment will flow to the right places at the right time, according to IEA.

Oil economist Daniel Yergin also sees the need for new investment. “When markets are this tight, all the OPEC countries can do is try to run and keep up,” he said in a recent interview. “Almost all are producing at capacity. And higher prices reduce the urgency to encourage investment. We really need investment in new production capacity.”

Early days yet in Alaska

In Alaska, most oil companies, so far, appear to have bucked the trend of under-investing, though the pace of wildcat exploration has slowed in recent years.

ConocoPhillips Alaska, for example, actually boosted its capital investment in Alaska oil and gas production each year during the past three years, up to $700 million in 2005. Likewise, BP Exploration (Alaska) Inc. shelled out progressively larger sums of cash for new projects during the same period, up to $694 million in 2005, although BP is seeking new oil from oil fields versus doing wildcat exploration.

Spokesmen for both companies point out that these dollars come on top of $1.1 billion and $900 million that ConocoPhillips and BP, respectively, will spend on ongoing oil output in the state.

But a recent move by Gov. Frank Murkowski to change the taxing formula via ELF (Economic Limit Factor ) on certain North Slope oil fields could discourage future investment in Alaska, some industry observers say. North Slope producers are challenging the rule change, which they contend will cost them another $150 million annually.

Access still key to more output

To boost the level of investment in new production, IEA said governments must remove “impediments to energy investments in their countries.”

“Access to much of the world’s oil reserves is restricted,” IEA Director Noe von Hulst told an audience in Dubai May 3. “Discoveries have fallen in recent years mainly because exploration has shifted to less prospective regions.”

“It’s not a question of encouraging oil companies to invest in new oil and gas production,” said John Felmy, director of statistics at the American Petroleum Institute. “Countries need to allow us to do it.”

He said energy sector investments climbed to $66 billion in new U.S. oil and gas production in 2004 and to $130 billion worldwide. (2005 figures are not yet available.)

“We are continuing to invest where we can, but the problem is we can’t in a lot of places, such as ANWR and offshore California,” Felmy said in an interview May 11.

He also cited recent turmoil in Russia’s petroleum industry caused by President Putin’s efforts to change legal policy and in Venezuela due to President Chavez pressuring oil companies to pay supposed back taxes as examples of countries raising barriers to investment by changing the rules of the game in midstream.

“Frankly, it gives you the ‘willies’ just thinking about investing in these countries right now,” he said.

Companies wary of uneconomic prospects

In some areas of the country, the industry may appear to be under-investing because many wells that were shut in after oil prices dropped to $8 a barrel in 1998 and 1999 have not been returned to production. These wells would have to be re-drilled, a move that might not be economic if they produce small quantities of oil, Felmy said.

Even at $50 a barrel, the industry is not likely to move quickly to invest in formerly uneconomic fields, especially when prices were $11 a barrel only a few years ago, he said. “These are 100-year-old companies, and they have a lot of experience with this. Investing is a continual process as they evaluate what’s best,” Felmy said. “As we have learned from the ’70s and ’80s, prices can come down.”

Still, “at $50 a barrel, anybody who can produce a drop of oil today is doing so,” he argued.

But for energy companies to substantially boost their levels of investment, Felmy said they require a combination of good tax policy, legal policy and security. “We need certainty that if we’re going to invest $1 billion, we’re going to get a good return for our shareholders,” he added.



Did you find this article interesting?
Tweet it
TwitThis
Digg it
Digg
Print this story | Email it to an associate.

Click here to subscribe to Petroleum News for as low as $69 per year.


Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.