Daniel Gilbert and Justin Scheck, The Wall Street Journal
January 28th, 2014
Chevron Corp. , Exxon Mobil Corp. and Royal Dutch Shell PLC spent more than $120 billion in 2013 to boost their oil and gas output—about the same cost in today’s dollars as putting a man on the moon.
But the three oil giants have little to show for all their big spending. Oil and gas production are down despite combined capital expenses of a half-trillion dollars in the past five years. Each company is expected to report later this week a profit decline for 2013 compared with 2012, even though oil prices are high.
One of the biggest problems: Costs are soaring for many of the new “megaprojects” to tap petroleum deposits needed to replenish depleting fields.
Plans under way to pump oil using man-made islands in the Caspian Sea could cost a consortium that includes Exxon and Shell $40 billion, up from the original budget of $10 billion. The price tag for a natural-gas project in Australia, called Gorgon and jointly owned by the three companies, has ballooned 45% to $54 billion. Shell is spending at least $10 billion on untested technology to build a natural-gas plant on a large boat so the company can tap a remote field, according to people who have worked on the project.
Finding the next gusher has always been a risky business, sending oil companies beneath the ocean floor and into unstable parts of Africa, Asia and the Middle East. Now the pursuit is trickier and more expensive than ever. The easiest-to-reach oil ran dry long ago, and the most prolific fields often are controlled by state-owned companies in places like Saudi Arabia and Venezuela.
As a result, Chevron, Exxon and Shell are digging even deeper into their pockets, putting their usually reliable profit margins in jeopardy. Exxon is borrowing more, dipping into its cash pile and buying back fewer shares to help the Irving, Texas, company cover capital costs.
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