|Shell, Total Step Up Reliance on Gas as Access to Oil Declines|
Bloomberg, 26 April 2010
BP Plc is also moving more resources to gas even after purchasing $7 billion of mainly oil assets from Devon Energy Corp. last month. Exxon Mobil Corp. blazed the trail into gas with its $30 billion acquisition of XTO Energy Inc. in December.
Although oil prices have risen 69 percent in the last year compared with a 21 percent gain for gas, companies are betting that the need for gas will grow. The Organization of Petroleum Exporting Countries is limiting oil supplies, the global economic recovery is stoking energy demand and governments are debating how to curb carbon dioxide emissions, increasing the appeal of the cleaner-burning fuel.
“Increased resource nationalism in recent years has made access to oil projects, particularly in OPEC countries, more difficult,” said Neill Morton, an analyst at MF Global U.K. Ltd. in London. “That has coincided with technological advances in gas shale and significant gas discoveries.”
BP reports first-quarter earnings tomorrow at 7 a.m. in London. The Hague-based Shell releases its results April 28, and Total follows on April 30.
Shell expects its share of gas in total output to rise to 52 percent in 2012, Chief Executive Officer Peter Voser said in March. Gas currently makes up two-thirds of its reserves, according to Chief Financial Officer Simon Henry.
Total’s share of gas output has increased, led by projects in Qatar and Yemen, according to Yves-Louis Darricarrere, head of exploration and production at the Paris-based company.
“About three or four years ago we were at 37 percent and now at 40 percent and maybe even 41 percent this year,” he said last week at an oil conference. Total’s shift into gas will be tempered in part by higher oil-sands production in Canada.
“Every oil company, if they would be absolutely honest, would say they still prefer to find oil,” said Jason Kenney, head of oil and gas research at ING Commercial Banking in Edinburgh. At the same time, “with the return of energy demand growth, there is every reason that gas is going to provide a good earnings stream for the companies.”
Total in January accelerated its expansion into gas with the $2.25 billion purchase of U.S. assets from Chesapeake Energy Corp. In March, it agreed to spend about $3.7 billion to develop the Laggan/Tormore natural-gas fields off the U.K. Shetland Islands in the North Sea. The company is investing in output of liquefied natural gas in Angola after startups in Yemen and Qatar last year.
Total’s share of oil output as a proportion of total production shrank to 60 percent last year from 65 percent in 2005. London-based BP’s share was little changed at 63 percent over the period.
“The shift in the gas market is reflecting the availability of vast new resources in the U.S. and other politically-stable regions,” said Ivor Pether, who helps manage $9.2 billion of assets at Royal London Asset Management. That coincides with a lack of opportunities to access new oil reserves, he said.
The Middle East, which holds about 60 percent of the world’s crude reserves, along with some Latin American states and Russia and Kazakhstan are limiting access to international oil companies in favor of so-called national champions.
Some new oil contracts, such as those awarded in last year’s Iraqi tenders, restrict the companies to providing field services and management.
Besides oil, other competitors to natural gas may become more expensive if governments agree on new limits for carbon dioxide emissions. More than 190 countries are discussing curbs on greenhouse gases for when current internationally binding targets set by the Kyoto Protocol treaty expire in 2012.
“The move to greener fuels is part and parcel of rising demand for gas,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “There will be a huge need for power generation, and most of that is coming through gas.”
Producers are ramping up gas output even as spot gas prices, which averaged only about 35 percent of the equivalent barrel of crude oil in the first quarter, are expected to stay depressed, according to industry forecasts.
“Producing crude oil is much more profitable than natural gas now,” Gianna Bern, a former BP crude-oil trader who runs Brookshire Advisory & Research Inc., said in an interview. Although “natural gas reserves are more accessible than crude oil, you don’t want to be overly weighted in natural gas.”
Crude prices averaged $78.88 a barrel in New York in the first quarter, about 82 percent higher than an average of $43.32 a barrel last year.
“I don’t see we want to be particularly any more in gas than we are currently, because the oil opportunities we’ve got are very high quality,” BP Chief Executive Officer Tony Hayward said April 15.
Before buying Devon’s assets, BP forecast in February that proportion of gas output would have risen to 45 percent from about 40 percent. Analysts expect BP earnings to beat Shell and Total in the first quarter, in part because the company relies less on gas.
BP is likely to report that profit, excluding one-time items and inventory changes, jumped 87 percent to $4.82 billion from a year ago, based on the median estimate of nine analysts compiled by Bloomberg. Shell may say earnings rose 36 percent to $4.03 billion on the same basis, another survey of 11 analysts showed.
Total may say April 30 that earnings adjusted for its stake in drugmaker Sanofi-Aventis SA increased by 12 percent to 2.36 billion euros ($3.1 billion) from last year, based on the median estimate of 11 analysts compiled by Bloomberg.
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