Exxon, Other Majors Play a Larger Role in the Middle East

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As its easy-to-extract resources are growing more scarce, the Middle East is looking to oil majors for help in developing its remaining resources. Exxon Mobil (NYSE:XOM) and other integrated energy companies like Chevron (NYSE:CVX) will play a larger role in the Middle East as the region seeks to replace the lost capacity by exploiting heavy oil and using recovery enhancement techniques. Presently, the oil and gas business in the region is dominated by state owned National Oil Companies (NOCs). [1] Access to these resources is expected to help Exxon and other majors increase production, which has been slipping over the past few quarters.

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Increasing its foothold

Oil and gas consultancy Wood MacKenzie estimates that oil majors and regional NOCs will together invest $40 billion in the region to develop newer and more complex resources such as heavy oil and natural gas with hydrogen sulphide content. [1] The growing local consumption of oil is also placing additional constraints on exports, which are crucial for government revenues. Exxon is presently competing for a project to extract heavy oil from mature oil fields in Kuwait while competitor Chevron plans to construct the largest steam flood development project in an area bordering Kuwait and Saudi Arabia in 2017.

Steam flood projects use steam to heat underground deposits of heavy oil and make it flow. Such activity is expected to be seen more in gas extraction projects as countries look to explore unconventional gas deposits to keep up with rising global demand.

Sustained prices

Increased drilling costs have pushed up oil prices to above $100 a barrel despite growth concerns. In the World Petroleum Congress held in Qatar this week, BP CEO Bob Dudley said that the oil industry needed to find a ‘Saudi Arabia sized producer each year’ to offset the decline seen in present fields. ((ref:1) Saudi Arabia is the world’s second largest producer of oil behind Russia, and the only major holder of spare capacity that can be ramped up in case of supply disruptions.

The tightening supply market is also expected to push producers in the Middle East to adopt enhanced recovery techniques supplied by oil majors to increase production from their maturing fields.

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Notes:
  1. End of Easy Mideast Oil Means Work for Exxon, Bloomberg [] []