Tuesday, October 3, 2006

Big Spending on Exploration & Production (and not a lot to show for it);

John S. Herold, Inc., a Stamfod, Ct., based research firm recently compiled data from the 203 largest, publicly traded, energy exploration and production companies. I’ll sum it up quick.

The companies raised their 2005 budget for exploration and production by a total of $277 BILIION, up 31% from 2004.

For their trouble, these companies increased their gross production 1%, and their reserves by 2%.

Even more telling, they spent $35 Billion on exploration, the balance of their E & P budget was spent on production. THEY SPENT $65 BILLION ON DIVIDENDS AND STOCK BUY BACKS.

This should be quite disconcerting for those of you clinging to the mistaken economic concept (geology trumps economics when it comes to oil extraction) that the incentive of higher prices will lead to greater production and reserves increases, as it should for our energy policy makers and their data production minions.

The most recent discovery of a super giant oil field was in the mid 1970’s in Mexico. We have not found a field like Cantarell in over 30 years. Either we have been incredibly unlucky for 3 decades, or there are no more super giants left to discover. Makes sense to me, considering that we are now drilling down in 7,000 feet of water and 20,000 feet of earth, 170 miles from land, in search of new deposits. That would certainly not make a lot of sense if there were a super giant just waiting around to be discovered in Central Park.

If the top 203 E & P companies increase E & P spending $277 Billion per year and cannot increase production by more than 1%… Think about it: the industry is spending a TOTAL of nearly $1 Trillion on E & P to increase production 1% per year when consumption is growing nearly 2% per year. To paraphrase Mark Twain: Reports of the demise of the energy crisis have been greatly exaggerated:

Greg Jeffers

mentatt (at) yahoo (dot) com

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