Trend: Big Western oil companies have been locked out of the most promising areas in the world for oil exploration.
Jim Jubak at MSN Money describes the future of oil production. He likes national oil companies with the world-class technology to exploit the next generation of difficult geologies. Excerpts below.
Link: To mix oil and profits, think small - MSN Money.
It's not just that big Western oil companies control only 13% of today's oil production -- down from 50% or more in the 1970s -- but that they have so little access to the most promising areas for future production.
National oil companies in countries such as Russia, Iran, Saudi Arabia and Venezuela control access to roughly 80% of the world's existing and probable oil reserves. And that percentage is rising as more countries move to take back or reduce exploration and production agreements signed with the international oil majors.
This isn't good news for the Western oil majors. It means they've been pushed into exploring for oil deep offshore or to mine oil from difficult-to-refine deposits of oil sands. The volumes of new oil produced from sources like these haven't been enough to offset production declines from older fields, and the high cost of developing oil from these sources has gobbled up even increased exploration budgets.
The majors face a worst-case future of higher costs and falling production. Their best case is quite possibly higher costs and stable production.
But the exploration lockout of Western oil majors isn't good news for global oil production either. The big international oil companies have the up-to-date technology and the huge resources of capital that the national oil companies need in order to exploit their potential oil reserves and the oil-field management skills to get the most out of existing fields.
Without that capital and expertise, production in countries such as Russia, Mexico and Venezuela will continue its recent decline, and the new reserves will come on line late or not at all.
It's that mismatch between oil production and oil demand that makes me believe that oil prices are headed higher in the long run. But with the international oil majors unable to increase production and facing higher costs, I don't think they're positioned to make the most out of rising oil prices. Yes, the oil they do produce will sell at a higher price, but they will be selling less of it each year.
Petrobras ... isn't just discovering a lot of oil and natural gas. It's discovering them in tough geologies and then drilling for them in really challenging environments.
That combination showcases the Brazilian giant's emergence through cutting-edge technology and makes it a very attractive partner for national oil companies that don't want any piece of the Western oil majors as partners.
Two 2007 discoveries, the Jupiter and Tupi oil and gas fields, exemplify the company's new stature. Either of these fields alone would be the biggest find since the 2000 discovery of the giant Kashagan oil field in Kazakhstan. But the newfound oil lies under 4.5 miles of ocean water and then under as much as 17,000 feet of sand, rock and salt. Tupi alone could cost between $50 billion and $100 billion to develop.
At the end of that process, though, Brazil's proven reserves could equal those of oil powers Nigeria or Venezuela, and Petrobras will be an acknowledged leader in oil-field technology.
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