Traverse City Record-Eagle

August 2, 2013

Despite boom, higher costs push profits down

JONATHAN FAHEY
AP Energy Writer

---- — NEW YORK (AP) — New troves of oil have been found all over the globe, and oil companies are taking in around $100 for every barrel they produce. But these seemingly prosperous conditions aren’t doing much for Big Oil: Profit and production at the world’s largest oil companies are slumping badly.

Exxon Mobil, Shell and BP all posted disappointing earnings this week. Chevron is expected to post a profit decline Friday. All of them face the same problem: The cost to get newfound oil from remote locations and tightly packed rock is high and rising. And it takes years and billions of dollars to get big new production projects up and running.

The higher extraction costs could translate to higher oil and gasoline prices for consumers.

Strong production growth at an oil company can offset higher operating costs, “but when production is flat or declining it’s a big hit,” says Brian Youngberg, an analyst at Edward Jones. “Even though oil prices are $100 or higher, the returns on investment aren’t what they used to be.”

The new oil being found and produced is in ultra-deep ocean waters, in sands that must be heated to release the hydrocarbons, or trapped in shale or other tight rock that requires constant drilling to keep production steady.

That makes this new oil far more expensive to get out of the ground than what’s known as conventional oil — large pools of oil and gas in relatively easy-to-drill locations.