INTERVIEW: Oil Prices: a Pause, Then Up by Sandra Ward
Highlighted companies: ExxonMobil Corp. (NYSE:XOM), Marathon Oil Corp. (NYSE:MRO), Royal Dutch Shell (NYSE:RDS.A), Hess Corp. (NYSE:HES), BP PLC (NYSE:BP), Total S.A. (NYSE:TOT), ConocoPhillips (NYSE:COP), EnCana Corp. (NYSE:ECA), Suncor Energy Inc. (NYSE:SU), Nexen Inc. (NXY), Canadian Natural Resource Ltd. (NYSE:CNQ), Chevron Corp. (NYSE:CVX)
Summary:Barron's interviews Charley Maxwell, a 50-year veteran of the oil and gas industry, and presents his thoughts on the energy scene. Key points:
- Previous shortages (1973-74, 1979-86, Iraq wars) were man-made; present shortages are due to a true lack of oil. Hubbert's Peak, the theory that says global oil production will peak, will dominate our attitude by 2015-2020.
- National oil companies [NOCs] account for 3/4 of global production. They face structural challenges: (1) Poor political influence; their profits are going to support local issues such as the military. (2) NOCs failed to react to a reduction in global surplus (it fell from 20% in 86-87 to the current 2-3%) due to lack of money and a lack of skilled management. "I don't know how we get around the problem of the NOCs. They control so much of the world's production and they are bloody helpless. They don't have enough money and they don't have prestige and they don't have professionalism."
- Multinationals such as ExxonMobil Corp. (XOM) lack vision; they have failed to recognize/react to the production problem. They are underspending on exploration and development and under-leasing deep-water projects.
- Peak oil: About 3 months ago it was unexpectedly discovered the world's second largest oil-field (Burgan in Kuwait) had peaked. Number one (Ghawar) is very close. Non-OPEC oil will peak around 2010, making us dependent on OPEC for all future growth, which will accelerate rising oil prices. The natural gas peak looks like it will only occur in 2035-2040.
- Oil company peaks: Marathon Oil Corp. (MRO) will peak in 2009. Royal Dutch Shell (RDS.A) 2009. Hess Corp. (HES) 2010. Exxon 2011. BP PLC (BP) 2012. Total S.A. (TOT) 2012. ConocoPhillips (COP) 2013. EnCana Corp. (ECA) 2020. Suncor Energy Inc. (SU) 2045.
- Barrels found vs. barrels used: 1930 -- 10B found 1.5B used. 1964 -- 48B found 12B used. 1988 -- 23B found 23B used (crossover point). 2005 -- 5B found 30B used.
- Oil prices: Currently, the 'bottom' could be in the high 40s. Yearly averages will stay in the 60s. In 2008-09 prices will begin their rise, going to 130-150, then a pullback.
Quick comment: Seeking Alpha commentary: Phil Davis has a series of articles on oil prices and producers including Crude Reality: Supply > Demand • Discussions on Oil • Still Cautious on Gulf of Mexico Driller Stocks • China's Oil Demand in Perspective • Debunking the Bear Case for Energy • OPEC commentary: OPEC Waffles on Production Cut • Oil Traders Testing the OPEC Cartel • OPEC Production Cut Looks Inevitable • OPEC's Dilemma: When and How to Cut Production • Richard Kang looks at Oil Versus Natural Gas • ETFs: Oil Service HOLDRs ETF (NYSEARCA:OIH) invests in oil-service companies, United States Oil Fund ETF (NYSEARCA:USO) invests in crude oil futures, gasoline, and other petroleum-based fuels. Roger Nusbaum looks at New Oil Sands ETF from Claymore • Future world oil supplies: There is a finite limit [Diedoff.org] • 10-Year Petroleum Trends (1994-2003) Highlights [IHS]