Copyright 2007 The Calgary Herald.
All Rights Reserved
The Calgary Herald (Alberta)
http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=a...
August 30, 2007 Thursday
Final Edition
SECTION: CALGARY BUSINESS; Deborah Yedlin; Pg. E1
LENGTH: 799 words
HEADLINE: Canada's oilsands bear the burden
BYLINE: Deborah Yedlin, Calgary Herald
BODY:
Anyone sounding the warning bells about oil prices crashing to earth
in the wake of the ongoing liquidity crunch would be well advised to
look at a joint study released Wednesday by energy research company
John S. Herold Inc. and global corporate advisory firm Harrison
Lovegrove & Co.
The study shows that in 2006, the global energy sector spent a record
amount of money in the quest to replace production, with less than
stellar results.
In round numbers, the industry parted with $401 billion US to
explore, develop and acquire -- but only succeeded in boosting
reserves by a meagre two per cent. For the sake of context, $122
billion was spent in 2002 and the cost to stay even in terms of
replacing this year's production is estimated at $280 billion.
The biggest chunk of expenditures came from acquisitions, of which
North American players figured prominently. This one piece of
information clearly shows the challenges to find and develop new
resources -- the options increasingly coming down to mergers and
acquisitions to show growth in reserves and production.
The good news from a Canadian perspective is that without the
Canadian oilsands companies booking the majority of the 1.9 billion
barrels added, about one per cent, the number would have been
significantly less.
And lest anyone think this was a one-time thing, it's not. Global oil
reserves would have dropped 2.1 per cent in the past two years if not
for the 6.4-billion-barrel increase in Canada, driven by the
oilsands; the gain in heavy oil and bitumen reserves since 2002 is
roughly equal to the change in total oil reserves and global oil.
"The oilsands have been shouldering the burden in terms of growing
global oil reserves," said Rod Schmidt, managing director with
Harrison Lovegrove in Washington, D.C.
No wonder oil was trading over $73 US per barrel Wednesday on news
from the U.S. Department of Energy that oil stockpiles were down 3.5
million barrels instead of the 800,000 barrels that was predicted.
Also contributing to the price rise was the drop in gasoline
inventories, which fell 3.6 million barrels instead of the forecast
1.8 million barrels. That means the U.S. has enough gasoline for 20
days -- the lowest on record.
The other regions contributing to the increase in reserves were the
U.S. and Asia-Pacific -- both in the context of natural gas reserves.
Take it one step further and natural gas in the U.S. is increasingly
confined to the unconventional sources -- primarily shale gas and
tight gas. If anything, the study underpins the trend that
conventional production in North America, for both oil and natural
gas, has peaked.
But the study shied away from discussing the notion of peak oil.
Instead, it suggested that the current environment in terms of costs,
production and reserves is being driven by the fact that companies
are opportunity-constrained because they don't have full access to
all the potential basins in the world.
If places like Russia, Venezuela, Iran and Iraq opened their doors to
all players, the supply side of the equation would change
exponentially. As this is not the case, the result is what we have
today: A tough environment for companies to find growth opportunities
around the world because of geopolitical issues.
This means they are relegated either to the old basins, to the
challenging, unconventional resource plays that are expensive or to
handing over a bigger share of their revenues to governments wanting
to increase their take. The study notes that almost 37 per cent of
gross revenues go to government coffers these days, up from 27 per
cent four years ago and even then, that probably underestimates the
total cost.
There were other eyebrow raising numbers included in the study.
For the first time since 1999, the industry spent more than its total
cash flow on exploration, development and acquisitions opportunities,
with Canada and the U.S. taking the largest share of expenditures.
Equally interesting was that even though the average realized price
per barrel of oil equivalent was $43.62 US per barrel, or 16 per cent
higher than 2005, a 31 per cent rise in the cost to produce the
reserves accounted for one-third of the increase in higher prices.
This means margins were squeezed and caused profits to come in 17 per
cent lower than the year before.
The study warns that if margins continue to get thinner, the amount
of money available to replace reserves will dwindle. That, of course,
has the potential to drive prices even higher. Some weeks ago there
was talk of oil hitting $100 US per barrel. This week, a few
observers were suggesting it could double to $200 per barrel if the
current political uncertainty in places like Iran and Nigeria
escalate into something more.
The sky is falling on oil?? Highly unlikely.
http://www.ihs.com/News/Press-Releases/2007/HeroldHarrisonStudy.htm
