Sunday, August 3, 2014

Exxon Bets on Russia as Rivals Stick to U.S. Wells

As Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc, the world’s largest oil companies, bet on increasing production from Russia, smaller rivals are boosting crude supplies by exiting foreign fields to focus on booming U.S. wells.


ConocoPhillips, Occidental Petroleum Corp. (OXY) and Apache Corp. reported rising second-quarter output as they divest international assets.

Nationwide, U.S. oil production is at a 25-year high because of advanced drilling techniques that cracked petroleum-rich shale formations.

Meanwhile, Exxon’s shares fell the most in almost three years after reporting quarterly oil and natural gas output decreased 5.7 percent to the equivalent of 3.84 million barrels a day, the lowest since the third quarter of 2009, according to data compiled by Bloomberg.

Exxon is searching Russia’s Arctic seas for crude as part of a global effort by the Irving, Texas-based company to halt a trend of declining output.

“Exxon and companies of similar size have been struggling for awhile on how to move the needle on production,” Stewart Glickman, an equity analyst at S&P Capital IQ in New York, said in a telephone interview yesterday. Sanctions against Russian interests threaten to frustrate international efforts to tap the Russian oil bonanza.

The U.S. and European Union said July 29 they would restrict the export of technologies for energy production to Russia, which holds an estimated $8 trillion worth of crude underground.

Malaysia Airliner

Shell is monitoring the situation in Russia after the downing of a Malaysian airliner this month escalated tensions over the country’s involvement in Ukraine.

The Anglo-Dutch company, which Deutsche Bank AG estimates has about $6.7 billion of oil and gas-producing assets in Russia, is working with OAO Gazprom (OGZD) on the expansion of the Sakhalin 2 LNG project.

It’s also exploring for oil with OAO Gazprom Neft in Siberia. Exxon is forging ahead with plans to drill an exploratory well in Russia’s Kara Sea this year, using a North Atlantic Drilling Ltd. (NADL) rig under contract for $535,000 a day.

The company also recently finished constructing the largest offshore oil platform in Russia as part of a partnership with OAO Rosneft. (ROSN) The structure, called Berkut, is located off the country’s Pacific Coast.

Sanctions Detail

Exxon is awaiting more details on what the sanctions entail, David Rosenthal, vice president of investor relations, said during a conference call yesterday. The company has yet to see any written explanation for what has been banned from the U.S. and EU, he said.

Exxon isn’t relying solely on overseas discoveries to fuel growth. The company is accelerating drilling in some of the same U.S. prospects favored by smaller rivals, including the Bakken in North Dakota and the Permian in West Texas, Rosenthal said.

BP Plc (BP/), which has a 20 percent stake in Moscow-based Rosneft, warned July 29 that more sanctions could hurt its business.

Apache, responding to pressure from activist investor Jana Partners LLC, said it’s exiting two liquefied natural gas projects and may seek a buyer for its international assets, a decision that’s “consistent with the company’s ongoing repositioning for profitable and repeatable North American onshore growth.”

For Occidental, domestic oil production climbed 6.5 percent to 278,000 barrels a day for the second quarter, with output from Permian Basin in Texas increasing more than 21 percent, Chief Executive Officer Stephen Chazen said in a statement.

The company continues to seek a buyer for its Middle East assets. ConocoPhillips reported output from continuing operations rose to the equivalent of 1.556 million barrels of oil a day from 1.51 million a year earlier.

The Houston-based company is planning to boost output in emerging U.S. shale formations by more than 20 percent a year through 2017.

bloomberg.com

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