THE WALL STREET JOURNAL Energy Journal
Energy Journal: Big Oil’s Size Problem
By Ben Winkley
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LESSONS FROM BIG OIL EARNINGS
This week’s round of Big Oil earnings showed that some of the world’s dominant energy companies are struggling to make money from massive bets on the shale boom in North America. The Wall Street Journal explains that this is because the deposits of oil and gas found there are proving abundant, but not always profitable.
Exxon Mobil’s earnings, reported here by the Journal’s Tom Fowler, show the company is still feeling the effects of its plunge into natural gas in 2010, which left it exposed to low prices.
Royal Dutch Shell, meanwhile, took a write-down of more than $2 billion on the value of its North American acreage, the Journal’s Selina Williams reports. Although the U.K.-based company didn’t identify which shale formation was responsible for the write-down, the Journal’s James Herron says it likely just failed to get lucky. That’s a big hit for bad luck.
Big Oil is running to stand still, says the Journal’s Liam Denning. Big Oil’s big dilemma, he says, is that every barrel pumped out of the ground has to be replaced with new reserves, unless companies want to shrink to nothing. If they want to increase production, they need to discover more than one barrel for every one pumped.
It’s a treadmill, and investors aren’t buying into scale these days. Growth rates at a company like Apache, which this week reported a significant profit increase, are increasingly attractive.
Sometimes less really is more, the Journal’s Spencer Jakab says. Welcome to Medium Oil.
U.S. BEGINS OFFSHORE WIND REVOLUTION
Some 200 wind turbines will be installed in the Rhode Island Sound, on the U.S. East Coast, as the country’s first ever offshore wind-energy auction concluded this week.
A milestone moment, said U.S. Interior Secretary Sally Jewell. An enormous step forward, said the winning bidder, Deepwater Wind.
It could invest $6 billion building turbines and transmission lines, having snapped up some 165,000 acres of federal waters for just $3.8 million, plus $500,000 a year rent until a wind farm is operational.
Next under the hammer are 113,000 acres offshore Virginia, to be followed by blocks off the coasts of Maryland, Massachusetts and New Jersey.
It has taken a long time to get to this point, and there can be no doubt that a number of factors are behind the U.S. lagging, say, Europe in this sector.
But a revolution could be beginning.
MOVING CANADA’S OIL
TransCanada, the company behind the controversy-plagued, long-delayed Keystone XL pipeline, is planning another route out of Alberta for all that heavy oil.
It plans to spend $12 billion building a pipeline all the way from Alberta and Saskatchewan to Canaport in Saint John, New Brunswick, the Journal reports. From there, Canadian crude will be able to access the world once a deepwater port is built (and have the knock-on effect of displacing imports from Africa, the Middle East and Venezuela).
What does this mean for Keystone? President Barack Obama has twice been openly critical of the proposed pipeline, Bloomberg reports. New Energy Secretary Ernest Moniz won’t even have a say in whether Keystone will be built.
Opposition to the Alberta-Gulf Coast pipeline is mostly on environmental grounds. This New Scientist report on out-of-control oil leaks in Alberta will add fuel to the debate.
Crude oil futures were slightly lower Friday as traders took profits after a slew of positive economic news from the U.S., Europe and China pushed the contracts to recent highs. Read the Journal’s latest market report here.
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