Oil production has begun falling at all the major Western oil companies, and they are having a harder time finding new prospects, even as they bring in record profits. We are finding many reasons for this......one being political and of course the other simply being the law of supply and demand. The political aspect has many consequences, as we know and Western oil companies are being deprived of resource-rich provinces. These companies are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies. These oil giants that once dominated the global market have lost their influence and with it, their ability to increase supplies.
The sharp retreat in all of the commodities' prices over the last month, about 20%, reflects slowing global growth. But don't let the slowing demand or the drop in oil prices deceive you. Rising demand from growing economies in China and India will continue to stress the market and these oil companies as well, finding supply more and more difficult to come by. With the mature regions such as the North Sea and Alaska, production has greatly been reduced. In a word, oil production has failed to keep up with demand and as we see on television and the media, people are beginning to realize the enormity of this problem.
Five of the biggest publicly traded oil companies, including Exxon Mobile, said their oil output had declined by 614,000 barrels a day. And even though that may not seem like a lot in a world that consumes 86 million barrels a day, today's markets are so tight that just one event, such as a hurricane or a geopolitical event (Russia invading Georgia), can easily cause havoc. These big oil companies have contracts with producing countries whose governments are allocating fewer barrels to them as prices rise. These governments realize they need to keep their own oil reserves. And speaking in terms of investments..........International companies have a portfolio of assests in areas of significant decline and no frontier discoveries to make up for that. We're talking financial losses in epic proportions. We have seen what the subprime mess did and the cancer that infected not just housing, but the financial markets, financial institutions and even government backed Fanny and Freddy.
Energy experts do not expect oil supplies to grow this year in countries outside of OPEC and yet global demand for oil is expected to expand by 800,000 barrels a day. OPEC as a whole has about 2 million barrels in untapped capacity that it's members control. And just as early as 30 years ago, Western corporations controlled more than half of the world's oil production. Today, however, they now produce just 13 percent. These companies we know as BP, Royal Dutch Shell, Chevron, Conoco Phillips, and Exxon Mobil. The largest holders of petroleum reserves now are stated-owned companies like Russia's Gazprom and Iran's national oil company. Ezekiel's war in chapter 37 and 38 is looking more and more of a reality right on the horizon.
Oil company executives contend that they have been shut out of promising regions by a rising assertiveness in the Middle East, in Russia, in South America and elsewhere by governments determined to keep full control of their oil. Even where Western companies are allowed to operate, countries such as Russia, Algeria, Nigeria and Angola have recently sought to renegotiate their contracts with foreign investors to capture a bigger share of the profits.
Western oil companies could have done more after the oil-price collapse of the mid-1980's. They could have invested heavily in exploration and production. In 1994, the top 5 oil companies spent 3% of their free cash on share buybacks and 15% on exploration. By 2007, they were spending 34% of their free cash on buybacks, which propped up their share prices, and only 6% on exploration.