CERAWeek: Oil companies vow to maintain exploration efforts

Oil firms must resist slashing E&D activities during the economic downturn if industry is going to meet projected long-term energy demand, executives said Feb. 10 during a Houston energy conference.

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Feb. 10 -- Oil companies must resist slashing exploration and development activities during the economic downturn if industry expects to supply energy to meet projected long-term demand, chief executives said Feb. 10 during an energy conference in Houston.

Various speakers at the Cambridge Energy Research Associates annual conference said their current business strategy involves avoiding the mistakes of past downturns. They referred to the 1980s when industry cut budgets and drilling activity to the point that consumers faced tight oil and gas supply after the economy recovered.

Jeroen Van der Veer, chief executive of Royal Dutch Shell PLC, said Shell believes it's important to keep investing in projects and to retain its workers rather than to make sweeping layoffs such as the industry has done previously when oil prices slumped.

"Keep investing through the cycle," Van der Veer said. "Keep your professional base, your people" to maintain operating stability when the economy recovers. He believes the industry still faces strong long-term fundamentals.

Shell is investing in technology to become more efficient, lower costs, and achieve operational excellence, he said.

"I think international oil companies are very well placed," Van der Veer said in response to a question about how international oil companies (IOCs) will respond to a growing emphasis about lowering carbon emissions by using clean-burning natural gas.

Mexico oil production
Petroleos Mexicanos is focused on a long-term strategy that includes plans to begin oil production from the deepwater Gulf of Mexico by 2015, said Pemex Chief Executive Officer Jesus Reyes Heroles.

Pemex is committed to spend at least $2 billion/year on exploration to counter declining production from its mature fields, he said.

"I'm here to underscore that Pemex is fully on board…[in] saying that we have to avoid the stop-and-go behavior," Reyes Heroles said.

Unlike many oil companies that are announcing budget cuts, Pemex plans to increase capital expenditures by 8.3% from last year to $19.5 billion this year and said it also might invest another $59.6 billion through 2012.

Reyes Heroles said discoveries in the onshore Chicontepec region might help offset declining production at Cantarell field in the southern Gulf of Mexico. Between January and October 2008, Cantarell produced 1.04 million b/d, down 31% from the same period in 2007.

The Chicontepec region spans 3,815 sq km in the states of Veracruz, Puebla, and Hidalgo.

By the second quarter, Mexico's government could be in talks with companies based outside Mexico regarding a revised framework for oil services contracts, Reyes Heroles told reporters. The new service contract framework stems from energy reform laws approved last year.

The flexibility authorized by the reform will provide more flexibility for Pemex and for outside companies interested in doing business with Pemex, Reyes Heroles said.

CNPC seeks partners
Jiping Zou, vice-president of China National Petroleum Corp. and president of PetroChina Corp. Ltd., said CNPC wants to work with both IOCs and national oil companies (NOCs).

"We remain open for cooperation in the area of exploration, production, refining, petrochemicals, and pipeline construction," he said of Chinese projects, noting that CNPC also is willing to invest and participate in projects outside of China.

Andrew Gould, Schlumberger Ltd. chairman and chief executive officer, said new exploration must continue if industry is going to meet projected energy demands.

"It's very easy to focus only on demand weakness," Gould said. "But I would say that focusing on supply is going to be just as important."

Schlumberger will not reduce spending on research or development efforts, he said, noting, "We have all seen the effects of uneven management in past downturns."

Contact Paula Dittrick at paulad@ogjonline.com.

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