Drilling Costs Presage Lower Profits at ExxonMobil and Other Majors

ExxonMobilOil, PetroChina, and other oil exploration companies should expect the extended up-cycle in day rates to rent offshore floaters to continue unabated. Declining yields from mature, onshore energy fields coupled with increasing natural gas and oil prices is driving the demand for global drilling activity in deep-water provinces, pushing fleet utilization rates for high-end rig counts close to 100 percent, too.

Record oil prices are lifting corporate profits to dizzying heights throughout the energy industry, with energy giants ExxonMobil, Royal Dutch Shell plc, and BP plc posting record first-quarter 2008 earnings of $10.9 billion, $7.8 billion, and $6.6 billion, respectively, up Y/Y 17 percent, 12 percent, and 48 percent, respectively.

However, rising oil and natural gas prices, combined with full capacity worldwide in the offshore rig market — and competition for these fleets — is hurting the backside of international oil companies, with drilling and production costs more than doubling in recent years. My own review shows that exploration and production costs in the first-quarter Y/Y at ExxonMobil, Royal Dutch Shell, and BP, rose 30 percent to $5.8 billion, 39 percent to 7.4 billion, and 59 percent to $10.0 billion, respectively. [read more…]