Big Oil Faces Output Challenge

Big Oil companies are failing to meet production growth targets because they are using up mature oil fields faster than they can find and develop new ones to replace them, according to analysts.

Industry giants Exxon Mobil Corp., Royal Dutch/Shell Group and Chevron Corp. have all missed output targets, despite the incentive of two years of high oil prices, Reuters reported.

"Recent history has shown that there's always some slippage in these numbers. Very seldom do we see a company exceed or even match its target," ABN AMRO analyst Gene Nowak told Reuters.

Irving, Texas-based ExxonMobil, operator of more than 4,100 Tigermarket, On The Run and Exxon Shop convenience stores, adopted a 3 percent annual growth target last year, but its output for the second quarter of 2001 was flat versus the same period of last year.

Shell, the number-two oil company in the world, reported that its second-quarter production grew by only 1 percent, well short of its 5-percent target. Chairman Phil Watts said Shell will review its growth target in light of the uncertain outlook for global economic growth.

U.S. companies face a particular challenge as unilateral government sanctions keep them out of the race to develop big oil reserves in Iran and Libya -- projects that have been gratefully snapped up by their European and Asian rivals, the report said.

But the struggle to prevent reserves running out faster than they can be replaced is common to all big oil companies. Depletion from existing oil fields runs at an average rate of about 5 percent per year, and that has to be replaced by an equivalent amount of new production just to keep output steady.

The bigger the company, the tougher the task it faces. Small independent producers can post impressive growth rates from a low base; not so for the supermajors, the report said. "To keep reduction flat is an achievement in itself because of their sheer size," said Fahnestock & Co. analyst Fadel Gheit.

London-based BP Plc posted one of the best performances, replacing 201 percent of its gas production and 86 percent of its oil. Shell replaced only 42 percent of its gas and 55 percent of its oil, the report said.

BP has set an ambitious production growth target -- 5.5 percent for this year and 5.5 to 7 percent for the longer term -- and recently said it is on track to meet this year's target after a 4-percent increase in the second quarter.

"I wish them luck. So far they're doing okay, but production growth is extremely difficult to sustain," Gheit said.
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