Yet the profits couldn't mask a trend that continues to trouble Wall Street and corporate boardrooms: Nearly every major oil company reported year-on-year oil and gas output declines, often in the double-digits.
Big Oil is throwing huge resources at the problem with more open embrace of unconventional petroleum developments, high-risk exploration in frontier areas and corporate restructuring. But even if these strategies work in some cases, there is little doubt that anemic petroleum output signals a long-term challenge confronting the sector.
The particulars varied across the sector. BP PLC's (BP) 11% output drop was fueled in part by the continued hit from its reduced activity in the U.S. Gulf of Mexico after last year's disastrous spill. Italian giant Eni's (ENI) production fell 15% due to its disproportionate exposure to war-ravaged Libya. Spain's Repsol YPF SA (REP.MC), whose output fell 17%, was affected by both Libya and the U.S. Gulf, as well as by labor unrest in Argentina. Norway's Statoil ASA (STO) saw a16% output decline largely on production outages and maintenance in its home market in the North Sea.
Oil giants are more vulnerable to operational problems in part because of their declining dominance over key resources. Whereas in 1973, independent oil firms controlled three-quarters of the world's reserves, they hold as little as10% today, according to some estimates. That has forced oil majors to rely to a greater extent on costly unconventional plays such as shale gas, deepwater exploration, and Arctic exploration.
Investment in conventional assets accounted for 63% of the majors' total capital expenditure between 2001 and 2005, research by Wood Mackenzie showed, with this proportion set to fall to 40% between 2011 and 2015.
Most European major oil companies posted a surge in quarterly profits last week, but their results were overshadowed by a trend that continues to trouble Wall Street and corporate boardrooms: Nearly every major oil company reported year-to-year oil-and-gas output declines, often in the double-digits.
Big Oil is throwing huge resources at the problem with more open embrace of unconventional petroleum developments, high-risk exploration in frontier areas and corporate restructuring. But even if these strategies work in some cases, there is little doubt that anemic petroleum output signals a long-term challenge confronting the sector.
Consolidation offers another way forward, yet few expect large corporate mergers between integrated oil giants in light of antitrust concerns and today's high oil prices. More likely is a deal akin to Exxon's purchase of U.S. unconventional gas specialist XTO, a major factor in Exxon's standout 10% rise in production in the quarter. Wood Mackenzie's Simon Flowers predicts more such "infill acquisitions," but says "large-scale acquisition is not likely in the near term."
Another possibility is the flowering of deals between private oil giants and emerging state-controlled firms like Brazil's Petrobras, Russia's Rosneft (ROSN.RS) and China's CNPC. BP's failed share swap and Arctic exploration deal with Rosneft was an example and illustrates the lengths to which companies are prepared to go to gain access to their potentially lucrative reserves.
Wall Street will likely push harder for some sort of tangible action from Big Oil in the coming months. The sector trades at a significant discount to the oil price itself, a factor that could sharpen calls for share buybacks and more special dividends. The recent move by ConocoPhillips (COP) to hive off its downstream business lifted the Texas company's share price and spawned questions for the rest of the sector. But so far, most of Conoco's peers have dismissed the idea as impractical in light of the advantages of the conventional integrated model.
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