Today’s Financial Times has one of its special reports on Energy.
It combines two of the recurring themes I have written about on this blog on and off over the last few months.
Firstly that Deepwater has made life more difficult for the majors, especially deep offshore and secondly, without deep offshore the oil majors are struggling to come up with new reserves.
The FT argues that the BP accident on April 20th “not only has it caused the UK oil group to re-examine its future, it has led investors to question the case for the supermajors”.
It is worth repeating the essence of that last sentence, that investors are questioning the case for the supermajors.
The paper quotes Fatih Birol, the chief economist for the International Energy Agency, as saying that things have got so bad, that the most of the international majors are having an “identity crisis”.
He says that over the last 25 years, these companies have been responsible for the “increase in oil production by more than 50 per cent, but now they cannot access new reserves”.
As a consequence they are having “more and more difficulties to book new reserves”.
It is the national oil companies that hold most of the reserves and increasingly they also have the know-how too. “The cards of the national oil companies are much stronger and the rules of the game are a bit different from a few years ago” argues Birol.
In many cases the oil majors are struggling just to stand still. BP – the current joker in the pack – has invested $300 billion since 2003 in its upstream business, but overall production has remained flat.
This poor performance was highlighted, says the FT, at a recent industry conference, where it was shown that the major integrated oil and gas sector has the second–worst price / earnings ratio of 24 industry sectors.
Big Oil only just beat the car manufacturers, an industry renowned for its low profitability.
Whilst many of the majors had been pinning their hopes on deepwater, there is no doubt that the Deepwater Horizon disaster has altered the game and led to many companies -and crucially investors – re-evaluating the risks.
“It’s not business as usual”, Gary Luquette, President of Chevron North America, tells the paper.
Such are the problems, that the FT argues that “BP and Big Oil needs to reinvent itself”.
So how about going beyond petroleum, only this time its not some public relations stunt, its for real…