Oil producers curb megaproject ambitions to focus on US shale

Chicago: Big US oil companies are starting to think small.

A stubborn 16-month crude rout with no end in sight is driving the largest US oil producers away from costly, high- risk megaprojects long touted as the industry’s future and toward safer shale operations that generate the cash needed to satisfy anxious investors.

Exxon Mobil Corp, Royal Dutch Shell Plc, Chevron Corp, ConocoPhillips and Hess Corp have all either delayed or abandoned projects that range from the deep seas of the Gulf of Mexico to Canada’s oil sands and the US Arctic. At the same time, Exxon and Chevron both announced plans to substantially increase US crude production, largely as a result of their shale operations.

“What makes more sense in this environment: drill a $100 million well in the deepwater Gulf that might come up empty, or poke lots of holes in west Texas where you already know there’s oil for a few million apiece?” said Michael Webber, deputy director of the University of Texas Energy Institute.

Reduced Spending

Explorers are expected to slash spending on deepwater wells by 20 per cent to 25 per cent next year, compared with a 3 per cent to 8 per cent overall reduction on all types of fields, according to Barclays Plc analysts including J. David Anderson. The type of giant reservoirs that require megaproject treatment are now found in only the roughest, deepest and coldest parts of the world.

International producers are failing to deliver 80 per cent of megaprojects on time and on budget, compared with about 50 per cent in 2005, said Neeraj Nandurdikar, oil and gas director at Independent Project Analysis Inc.