How Wall Street Is Killing Big Oil
Lee Raymond, the famously pugnacious oilman who led ExxonMobil between 1999 and 2005, liked to tell Wall Street analysts that covering the company would be boring. “You’ll just have to live with outstanding, consistent financial and operating performance,” he once boasted.
Those days are over. Once reliable market beaters, Big Oil shares are lagging: Over the last five years, when the S&P 500 rose more than 80 percent, shares of Exxon and Shell rose just over 30 percent. The underperformance reflects oil majors’ inability to maintain steady cash flows and increase production in a world where much of the easy oil has already been found and project costs are rapidly escalating.
Big Oil is, in short, heading towards liquidation. And this process has set in motion a tectonic shift in the global energy balance of power away from western international oil companies, or IOCs, and towards state-owned national oil companies, NOCs, in emerging markets.
Ironically, the rise of emerging-market NOCs and the decline of Big Oil come in the middle of the US-led fossil fuel renaissance. Thanks to higher prices that have made it cost-effective to deploy horizontal drilling technologies to unlock shale oil and gas deposits, the US is set to overtake Saudi Arabia this year as the world’s largest producer of petroleum liquids.
However, the euphoria surrounding new US status as a big-time energy player masks the real existential crisis facing Big Oil. With the vast majority of petroleum reserves controlled by NOCs, the majors are forced to explore in risky, inhospitable, politically unstable and remote regions such as the Arctic or deep under the ocean floor.
Source: oilpricecom- How Wall Street Is Killing Big Oil
