Big Oil's Trouble Abroad
As much as energy investors criticize government regulation that can increase production costs for oil and gas companies, operating in a politically stable country like the U.S. certainly has its advantages. We saw it with Libya at the beginning of the year, and while operations in that country are beginning to pick up, Africa and the Middle East remain trouble spots for oil and gas producers this year.
Getting out of Syria
Citing recent European Union sanctions, Royal Dutch Shell (NYS: RDS.A) is pulling out of Syria. Shell produced an average of 20,000 barrels of oil equivalent in Syria last year and has three production licenses in 40 Syrian fields.
Shell and Total (NYS: TOT) are the largest foreign oil producers operating in Syria. Total will also be affected by the sanctions but will continue to produce oil in Syria, even though the government has more or less stopped paying the company.
Europe banned Syrian imports in September, in an attempt to put pressure on the oppressive regime there. Though Syrian oil production accounts for less than 1% of daily global output, Europe is one of its biggest customers. Average daily production dropped from pre-ban levels of 380,000 barrels a day to 250,000 barrels a day, and the decline has already increased the value of other crudes.
Selling off assets in Nigeria
Syria is just one of the monkey wrenches in Shell's foreign production plan. The company's operations in Nigeria have been victimized and criticized for quite some time, but this past year has seen a surge in problems for the company. As a result of an increase in oil theft and sabotage, Shell is divesting some of its onshore assets in Nigeria. Shell joins Total and Eni's (NYS: E) Agip subsidiary in a license sell-off worth $732 million.
Shell maintains that it will continue to remain a presence in Nigeria, onshore and off, but selling off assets is just one example of how the company is beginning to change its focus.
There was a notable shift in Shell's capital expenditures from 2009 to 2010. The company trimmed its oil and gas exploration budget in Africa by about 30%, while the budget for North America more than doubled. Obviously, this coincides with the North American oil and gas boom, but the importance of political stability can never be understated.
Through the first nine months of this year, overall capital expenditures are down $5 billion compared with the same period last year.
There is a reason that global companies like Statoil (NYS: STO) are buying up small oil and gas producers in the United States: The ability to play an energy boom in a country with a stable government doesn't come around every day. Consider adding these global giants to My Watchlist, and stay up to date on foreign oil production and analysis.
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