Oil Majors and Nationals Ready to Ride Production Stutters

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated, Houston, Texas). At the same time, in mid-January, as OPEC members were announcing a 7% boost in oil production, to start in February, other oil majors and producer nations, both OPEC and non-OPEC, were announcing increased production targets for 2003. The Opec move was designed to fill part of the gap in the market supply caused by the 2 million bpd lost through Venezuela's civil strife. The 7% on paper represents around 1.5 million bpd but in fact may only come to half of that initially due to a lack of capacity to make the sudden jump among members.

Prices moved significantly over the $30 per barrel mark, fed by uncertainties and the threat of war in Iraq. If Iraq's production were to be taken out of the equation another two million barrels per day would go missing from world supplies.

China's national oil company CNOOC has announced that its core strategy has remained unchanged. It will continue to focus on growing production, adding reserves through exploration and opportunistic acquisitions and developing the natural gas business. The plan to make solid returns will be paralleled by targeted net production in 2003 of 134 to 138 million boe (barrels of oil equivalent. This caps what is termed as 'historic' production growth in 2002. In 2001 the target was 95 million boe and in 2002 110 million boe was targeted. Indonesian assets are expected to continue to deliver good results. Natural gas and offshore exploration will support the production targeting which represents a 25% increase year on year between 2002 and 2003.

With a full investment pipeline to support profitable growth and maintain sustainability CNOOC is looking to take advantage of favorable market conditions in 2003 to improve the company's capital structure and increase returns. During the year a total of 12 development projects are scheduled to be under active construction.

Although higher production quotas in Nigeria are still won only by intense lobbying at the state oil company's headquarters in Abuja it is expected that new output figures will be assigned to foreign joint venture partners in the near future. Oil producers are preparing to up output after having made major investments in Nigerian oilfields over the past months only to be stymied by OPEC curbs which have been strictly monitored by the authorities. All the majors operating in and offshore the country are looking to make up lost ground as some wells have been operating at a fraction of full capacity.

In Russia the major Lukoil has set a production target of 80 million tons of crude for 2003. Production grew 2.2% in 2002 to 787.2 million barrels. Gas production is targeted at 5.7 billion cubic meters, up from 5.1 billion in 2002. Capital expenditure for the year is set around $2.4 billion. This growth rate pattern will accelerate when current production projects start to contribute through 2005 and onwards. Exports in 2002 represented around 44% of production. Refinery throughput rose 9.2% to 41.5 million tons and gas output moved up 2.2% to 2.4 million tons. Lukoil's petrochemical output rose by 34% to1.6 million tons.

Other regions are also planning for major and sustainable production increases. Significantly, although some of the producer neighborhoods are rough and tough, most are not in areas of threatening major disruptive conflicts.