[R-G] Global oil reserves up only 1% last year

[Macdonald Stainsby]

Global oil reserves up only 1% last year
Canada's Oilsands Sole Booster, Study Says
Claudia Cattaneo, Financial Post
Published: Thursday, August 30, 2007
http://www.canada.com/nationalpost/financialpost/story.html?id=7bd3bdc5-...

CALGARY -- Record global oil and gas profits of US$243-billion and record
spending of US$401-billion have resulted in a marginal 1% increase in
world oil reserves last year -- all of it coming from a 1.9-billion-barrel
addition from Canada's oilsands, according to a new study.

Without Canada's contribution, 228 public oil and gas companies active
globally and included in the study would have collectively produced more
oil than they found, John S. Herold, a U.S.-based independent petroleum
research company, and Harrison Lovegrove & Co., a global oil and gas
advisory firm, said in the 2007 Global Upstream Performance Review,
released yesterday.

"With many prospective regions still off-limits, oil reserve and
production growth remains infinitesimal," says the study, the 40th
conducted annually by the two organizations and based on data filed with
the U.S. Securities Exchange Commission and similar agencies worldwide.

"Global oil reserves would have fallen by 2.1% over the last two years
without a 6.4 billion barrel increase in Canada. Oil production barely
budged from 2005."

The industry had disappointing reserve addition results despite looking
hard for new deposits: Exploration spending grew by 39%, the largest jump
in five years.

Meanwhile, with too much cash from high oil prices chasing too few
prospects, oil and gas companies spent more money buying back their stock
in the past two years than they did acquiring proved reserves, the study
found. Dividends in 2006 reached a record of US$83-billion and share
repurchases increased to US$88-billion.

"The industry has been able to generate enormous wealth for its
shareholders over the last several years, both from the upstream and
downstream sectors," the report says. "However, questions are remaining as
to the sustain-ability of this performance. We see the primary challenges
lying in reserve maintenance, particularly for oil, and in controlling the
costs of finding and producing hydrocarbons in a fiercely competitive
environment."

While high oil prices boosted industry revenue to US$832-billion,
US$133-billion higher than in 2005, a greater proportion ended up in
government coffers, or 37% of gross revenue, up from 27% four years ago,
in the form of production-related taxes or income taxes, but not including
royalty payments.

As accessibility to many regions declined, investment in Canada and the
United States grew to 50% as a percentage of all investment in 2006, from
43% in 2002.

Companies such as EnCana Corp. have sold international assets and
repatriated spending in recent years to North America, particularly to the
oilsands, where projects are seen as politically and fiscally secure.

Oil majors such as Anglo/Dutch Royal Dutch Shell PLC, French Total SA and
Norwegian Statoil ASA are also investing heavily in the unconventional
deposits.

Despite record profits last year, the sector overspent its cash flow for
the first time since 1999 while margins were lower after rising for three
years, as all types of costs soared.

"Rising commodity prices are masking the fact that investment returns are
under pressure," the study says.

"Net income as a percentage of book value of oil and gas assets declined
in 2006 following three years of gains. Barring a drop in drilling rates
and oil-field services costs or an increase in commodity prices, we expect
that profitability will slip again during 2007."

The challenges are heating up the debate over peak oil, the report says.

"Without expressing a position on the matter, we believe that the issue
has become part of the industry's long-term planning," the study says.

"If the peak oil theory is correct, and a decline in world production is
imminent, a company must choose among four alternatives -- try to become a
dominant participant, find a niche operational talent, harvest assets or
liquidate quickly."

The picture is brighter for the natural-gas industry globally. Reserves
and production grew by 3% in each of the past four years, thanks to the
success of so-called "resource plays" that rejuvenated the U.S. sector and
growing liquefied natural-gas operations in the Asia-Pacific region.

© National Post 2007


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Macdonald Stainsby
Co-ordinator,
http://oilsandstruth.org
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