Big Oil = Dinosaurs at the Tar Pit?

As we’ve discussed before, Big Oil is quickly losing its historical global primacy to state-owned oil and natural gas companies in Russia, Venezuela, Saudi Arabia and elsewhere, i.e. the New Seven Sisters.  Two recent articles provide recent examples of this transition.  In the first, Steve LeVine examines Exxon’s view that resource nationalism will moderate as petro-states like Russia will still turn to Big Oil for high technology to arrest their declining production and develop difficult new fields.  However, as LeVine notes:

…The direction of global oil is clear, and it’s toward the demise of the Big Oil companies as we know them. In general, the petro-states that control more than 80% of global oil reserves can get what they need from technology-rich oil services companies, and will largely do without the Exxons, Chevrons and BPs of the world.

…Gazprom deputy chairman named Alexander Ananenkov. In a news conference yesterday, he called Exxon’s control of the giant Sakhalin-I natural gas field an “infringement of Russia’s national interests.” He added that Exxon’s wish to sell its Sakhalin-I gas to China had made Russians “poor relations who see their gas siphoned off.”The fact is that, according to Exxon’s contract, it can sell the Sakhalin production wherever it wants, and China is willing to pay a higher price than Russia.

But that ignores political reality. Russia wants the Sakhalin gas for the domestic market. Why? So it can keep selling its own gas for enormous profits to Europe. And, in case it must curtail its exposure to Europe because of growing alarm there over Russian market dominance, Gazprom itself wants to be able to sell to China.

…Exxon is also the lead rebel in a several-month-long dispute with Kazakhstan over the supergiant Kashagan oilfield. The Kazakhs are in a fit over a minimum five-year delay in first production at the Caspian Sea field, plus a huge budget over-run. The Kazakhs want more money, and they want it faster than they are contractually guaranteed….”

In a second article, LeVine examines the possibility that parties dickering over the suspended supergiant Kashagan oilfield are near a settlement with Kazakhstan.  As LeVine points out:

“…The four-month-old dispute at Kashagan — the largest discovery in the world in four decades — has become emblematic of petro-nationalism that has shifted the center of gravity in the energy world.

So far, Kazakhstan has been different from belligerents such as Venezuela and Russia in that it hasn’t sought to take back a controlling stake of its oilfields from big private companies. But, given $90-a-barrel oil, the state is highly irritated at the terms of the 1997 Kashagan, and is seeking a better deal. There is at least a five-year delay in first oil from the 13-billion-barrel field.

…The companies will try to keep the final agreement secret so as not to encourage others to be so bold. Exxon in particular is a stickler on this — it’s a 25% partner in the supergiant Tengiz field, a sister to Kashagan, and it won’t want to encourage Kazakhstan to now shift its contract revision efforts there (expect Kazakhstan to do just that).But the terms are bound to leak out. Petro-nationalism is a spreading disease.”

This entry was posted on Sunday, December 30th, 2007 at 8:58 pm and is filed under ENI, Kazakhstan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.