[R-G] Big Oil Boosts Buy-backs in Absence of New Investments

[Yoshie Furuhashi]

Oil capitalists apparently have gone on strike in response to resource
nationalism in the South and environmentalism in the North. -- Yoshie

<http://www.ft.com/cms/s/0/86436dae-1260-11dd-9b49-0000779fd2ac.html>
Big oil boosts buy-backs in absence of new investments

By Sheila McNulty in Houston

Published: April 25 2008 03:00 | Last updated: April 25 2008 03:00

Rising nationalism, insufficient talent and scarce supplies are
limiting investment opportunities for the world's major oil companies,
leading them to increase share buybacks, said Jim Mulva, chief
executive of ConocoPhillips.

Conoco, the US's third largest oil company, budgets $15bn a year on
capital spending. "We, technically, could be spending more," Mr Mulva
said in an interview. "But we have a number of issues or concerns."

Among them are "availability of opportunity", given heightened
nationalism in oil-rich countries, such as Venezuela, and the US's
refusal to permit development of environmentally sensitive areas.

In addition, he said, "there is a real issue of human resource
talent". The industry projects the retirement of 50 per cent or more
of its staff over the next 10 years, and prices for already scarce
talent are skyrocketing.

Against this backdrop, a study by the James A Baker III Institute for
Public Policy notes the Big Five international oil companies have cut
exploration spending in real terms between 1998 and 2006, despite
rising prices and profits.

ExxonMobil, BP, Chevron, Royal Dutch Shell and Conoco used 56 per cent
of their increased operating cash flow on share buy-backs and
dividends instead of exploration, the study said. They continue to
commit billions to share buybacks, with Exxon, the world's biggest
private oil company, spending $35.6bn for share buy-backs and
dividends in 2007, up $3bn from 2006. Yesterday, Conoco, the first
major to report first-quarter earnings, registered $4.1bn in net
income, up from $3.6bn in the yearearlier quarter, on high oil prices.
It spent a hefty $2.5bn repurchasing stock, amid plans to spend $10bn
on share buy-backs this year.

"One could argue that companies spending this amount of money buying
back stocks are slowly liquidating themselves," said Robin West,
chairman of PFC Energy, the consultancy.

The majors have been reducing exploration dollars since 1988-1989,
said Priscilla McLeroy, a director at Arthur D Little, the
consultancy. She attributes it to them being so big that not even
"elephant-sized" fields are worth investing in; rather they need
"mammoth-sized" fields to get sufficient returns.

Amid today's nationalism, such fields are increasingly difficult to
find. While Mr Mulva was the only executive linking limited investment
challenges with share buy-backs, other chief executives told the
Financial Times of difficulties making energy investments. Jeroen van
der Veer, Royal Dutch Shell's chief executive, said: "There is not
enough access to easy oil and easy gas."

Rex Tillerson, Exxon's chief executive, said: "The risks associated
with major energy projects are considerable."

In 2007, Venezuela expropriated Exxon's assets in nationalising the
energy sector. Exxon has filed for arbitration following Venezuela's
failure to pay the compensation mandated in the project agreements.

"A shared commitment to open markets, international trade and contract
sanctity is essential to meeting the energy supply challenge for our
generation and those that follow," Mr Tillerson said. Without that
commitment, it is the majors who lose, as they cannot be confident in
doing business with the national oil companies that control more than
80 per cent of the world's reserves. Mr Tillerson also noted: "We are
not immune to the recent overheated cost pressure in the industry."

-- 
Yoshie
<http://montages.blogspot.com/>