Integrated Oil & Gas Round-Up Q3 2014: Upstream Production
The integrated oil and gas companies operate in both upstream and downstream segments of the industry. The upstream division of these companies is primarily responsible for exploration and production of hydrocarbons, while the downstream division focuses on producing refined petroleum products such as gasoline, diesel, and lubricants. The valuation of the upstream division primarily depends upon four main drivers that include net hydrocarbon production, crude oil prices, sales volume-mix, and capital and exploratory expenditures. In this article, which is a part of our quarterly oil and gas industry review, we highlight the key factors that drove net hydrocarbon production reported by Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP Plc. (NYSE:BP), Royal Dutch Shell Plc. (NYSE:RDSA), and Petrobras (NYSE:PBR) during the most recent quarter. We will be taking a closer look at other drivers in separate articles.
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Exxon, Chevron, BP, Shell, and Petrobras together produced over 14 million barrels of oil equivalent per day during the third quarter. That’s roughly 10% of the global oil and gas supply. The table below, which has been compiled using data from SEC filings, summarizes average daily net hydrocarbon production reported by these companies in each of the quarters since the beginning of 2012. These figures represent total upstream production in thousands of barrels of oil equivalent per day, which includes their share of hydrocarbon production reported by their equity affiliates as well. The last column of the table also highlights the year-on-year percentage change in net hydrocarbon production reported by each of these companies during the most recent quarter. [1]
Chevron’s net hydrocarbon production, which is expected to remain largely flat this year, declined marginally by around 0.7% y-o-y during the third quarter, as growth from the continuing development of shale and tight resources and the ramp-up of recently started projects was more than offset by the impact of asset sales, lower production entitlements, and normal field declines. However, the company reaffirmed its short to medium term production growth outlook citing progress on the key projects that are expected to drive its average daily hydrocarbon production rate to 3.1 million barrels of oil equivalent per day (MMBOED) by 2017 from around 2.6 MMBOED currently. [2]
On the other hand, Exxon and Shell reported a steeper (approximately 5%) drop in their net upstream production during the quarter. This was primarily because of the expiry of the Abu Dhabi onshore concession agreement. The companies lost their 75-year rights to the emirate’s oldest producing fields this January, when the Second World War-era contract expired. These oilfields together account for around 50% of Abu Dhabi’s total oil output (almost 3 million barrels per day) and hold more than a 100 billion barrels of oil and oil equivalent. Until a new concession agreement is signed, Abu Dhabi National Oil Company (Adnoc) will be the sole-risk shareholder of the Abu Dhabi Company for Onshore Oil Operations (Adco), the current concession’s joint-venture operator. As a result, Exxon, Shell and other foreign oil companies, which were previously involved in the concession, are currently not being able to lift equity oil or book reserves from these oil fields. [3]
BP too was impacted by the expiry of the Abu Dhabi onshore concession agreement. During the third quarter, the company’s net hydrocarbon production declined by around 2.7% year-on-year. However, after adjusting for the impact of the Abu Dhabi contract expiry and other divestments, BP’s upstream production actually grew by 4.1% y-o-y during the quarter, as production from new project start-ups more than offset the impact of natural field declines. This year, BP has already started production from five major projects including the Chirag Oil project in Azerbaijan, the Mars B and phase 3 of the Na Kika project in the Gulf of Mexico, the North Atlantis Expansion 2, and the CLOV project in Angola, which is operated by Total (NYSE:TOT). In addition, BP is also working on bringing up two new projects later this year. These projects include the Kinnoull project in the North Sea and the Sunrise Phase I project in Canada. During the third quarter earnings call, BP noted that the start-up of the Kinnoull project is in progress and should complete soon. The company also announced that the Sunrise Phase I project is on track, with construction of the central processing facility over 95% complete. We therefore expect BP’s average daily hydrocarbon production rate to bottom out by the end of this year and gradually increase thereafter. [4]
Petrobras is the only integrated oil and gas company we cover that posted a year-on-year growth in net hydrocarbon production during the third quarter. While the company’s total hydrocarbon production increased by 8.9% y-o-y, its net crude oil production grew by 8.3% y-o-y during the third quarter. The growth in crude oil production was primarily driven by the ramp up of P-55 and P-62 platforms at the Roncador field and the P-58 platform at the Parque das Baleias (Whale Park) field. Both the fields are located in the offshore Campos Basin that holds more than two-thirds of the company’s total proved hydrocarbon reserves in Brazil. Petrobras plans to grow its average daily net crude oil and natural gas liquids production by 5.5-6.5% y-o-y this year. However, given the progress made so far, we believe the target to be a bit high and have factored in a 5% y-o-y increase in its total upstream production for the full year. [5]
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Notes:- SEC Filings, sec.gov [↩]
- 2014 3Q Earnings Supplement, chevron.com [↩]
- Abu Dhabi to Run Onshore Oilfields as Foreign Tie-Ups End, bloomberg.com [↩]
- BP Third Quarter 2014 Earnings Call Presentation, bp.com [↩]
- Petrobras total production in September, investidorpetrobras.com [↩]