Big money pumps out few barrels of oil

The world’s three largest fully publicly traded oil firms are investing billions of dollars more this year and the extra spending has yet to result in higher production. Exxon Mobil, Royal Dutch Shell and BP posted falling second-quarter output, even though they plan up to a total of $61 billion in 2007 capital spending, up 5.5% from 2006.

“We’re in a transition for the super majors where they are spending an awful lot to reinvigorate their portfolios,” said Jason Kenney, Euro-pean oil analyst at ING in Edinburgh. “It takes time.”

The drop in supply reflects declining output from fields in mature oil regions like the North Sea, violence by militants in Nigeria that has cut output for some companies and slow access to big sources of new reserves. Oil firms get some production from countries in the Organisation of the Petroleum Exporting Countries (OPEC), but top exporter Saudi Arabia keeps its oil fields off-limits to foreign investors.

OPEC’s members, whose oil industries are run by national oil compa-nies, sit on three-quarters of the world’s proven reserves and 10 of the 12 members pump crude at agreed levels to bolster prices.

Besides disruptions in Nigeria, which have trimmed output for Shell and other companies, Venezuela and Russia are grabbing more cash and control from firms that work their oil and gas fields. Resources are increasingly located where extraction is technically harder, such as beneath seas that ice over in winter off Russia’s Sakhalin Island, or in politically volatile regions like the Middle East.

“Access to easy oil and easy gas... there’s less access and less of those hydrocarbons around,” said Shell chief executive Jeroen van der Veer when the company reported earnings last week. “The new supplies will come out of more complex projects — far away, very cold, different political regimes. They’re usually large-scale projects, with risks.”

Shell last week posted a 2% drop in oil and gas output to 3.178 million barrels of oil equivalent (boepd) in Q2. Exxon, the only one of the three to raise output last year, had a 1% fall in production to 4.12 million boepd and BP’s supply fell by 5% to 3.8 million boepd. Exxon said supply fell because of declines at mature oil fields, OPEC produc-tion cuts and lower European demand for natural gas. Shell lowered its sights for full-year production, saying it would be at the lower end of a previously given range of 3.3-3.5 million boepd this year.BP expects full-year output to fall. New chief executive Tony Hayward is working to turn the company around, saying last week its current operational performance is “not good enough”.

Companies are lifting spending after years of under-investment and rising demand helped send prices skyrocketing. Much of the boost is being soaked up by rising costs for rigs, steel and wages. Brent crude hit an 11-month high at $78.40 a barrel earlier in July, within sight of the record high $78.65 touched in August last year. It has since eased to around $76.

Exxon expects capital investment to remain little changed, up around 0.5%, in 2007 while Shell and BP plan larger in-creases of up to 9.5% and 6.5%, respectively. Total, the fourth-largest non government-controlled oil firm, may buck the trend among its larger rivals by reporting an increase in Q2 production because of new fields in Angola, ING’s Kenney said.