How would you spend $300 billion?
By Andrew Mickey
Who could have seen this coming? Exxon Mobil (XOM:NYSE) announced it’s upping its production and exploration (P&E) budget to $21 billion this year and at least $20 billion per year through 2011.
And the rest of the oil industry is following suit. Marathon Oil (MRO:NYSE) will be dumping $4.2 billion into new P&E projects. Chevron (CVX:NYSE) is ramping up its 2007 capital investment expenditure by 22% to $14.6 billion.
But these are just a few examples of what’s going on across the oil and gas industry. In fact, after setting a record for industry-wide spending in 2005 by investing $156 billion in P&E and more than $200 billion in 2006, Big Oil will be trouncing both of these records by shelling out more than $300 billion in P&E in 2007.
The reason for the sudden increase this year is because oil companies are having trouble finding more oil. Back in 2000 they were able to locate new sources of oil for about $3 per barrel on average. However, that cost has surged to more than $9 in 2007.
This is cementing a lot of the falsely held belief in Hubbert’s Peak Oil Theory. You see, over the past 100 years the world has consumed 1.08 trillion barrels of oil. And according to the world’s top energy research firm, Cambridge Energy Research Associates (CERA), there’s still more than 3.74 billion barrels of oil left in the earth’s crust. We’re decades off from peak oil.
There’s plenty of oil in the ground, and with new oil production processes like steam flooding and gas pressurization, the oil industry has developed the technology necessary to get it out of the ground. The’ve just got to find it.
And that’s the toughest part -- finding it. According to CERA’s chairman Daniel Yergin, “[The oil industry] is an industry that moves in cycles, and right now, enormous amounts of innovation, technology and investments are being unleashed.”
The technologies are being developed to find and produce more oil. During an up cycle in the oil industry like the one we’re in, new technologies aimed at getting more oil out of the ground abound. However, once all of these are completely developed and in place, oil production is going to soar and the high price for a barrel of oil won’t last.
But there is one thing that will last: the problem of finding new sources of oil. Right now, the seismic-data surveying industry is booming and the companies are making money hand over fist.
In fact, the seismic-imaging sector is downright booming. Sure, offshore drilling specialists, oil rig owner and operators, and the entire oil service sector will get a nice piece of the $300 billion pie. But it is seismic imaging that will be taking more than its fair share, thanks to the skyrocketing cost of simply finding a barrel of oil.
Oil prices may fall -- or they may not -- but one thing’s for sure: It’s only going to get more expensive to find new sources of oil. Learn more about the best play in the seismic-imaging sector here.
That’s all for now,
Andrew Mickey
Editor in chief, BreakAway Investor
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