Western Canadian Select crude risesto 41-week high on summer demand

Western Canadian Select crude oil jumped to its highest price differential in 41 weeks on Thursday as trading for June injection picked up with the start of the new month.

Sources said WCS traded as high as the calendar month average of NYMEX light sweet crude (WTI CMA) minus $16.90/barrel, its highest differential since hitting minus $15.80/b on July 18, 2013. WCS was assessed Wednesday at WTI CMA minus $18/b.

Sources said that trading had been slow for June through the end of April, but Thursday saw substantial activity throughout the morning, with demand strong after the recent lull.

Some sources said that the strength appeared to be anticipating summer demand, while one trader said low stocks in the US Midwest could have contributed to the rise.

A second trader, however, said that the rise “doesn’t make much sense” given the recent weakness.

A broker, meanwhile, noted: “I can’t see WCS coming down to the Gulf Coast at that level. It’s almost not worth it.”

Unlike Wednesday, when Canadian pipeline markets rose in unison, the jump in WCS contrasted with a decline in the differential for Syncrude, the benchmark for light Canadian crude. Sources said Syncrude traded as high as WTI CMA plus $4.00/b before falling back to plus $3.00/b, down 25 cents/b from the Platts assessment on Wednesday.

Syncrude had been supported by maintenance at Canadian Oil Sands’ Syncrude refinery in Alberta, but similar light crudes in the Bakken saw a sharp drop on Wednesday. Bakken pipeline assessments declined 65 cents/b on Wednesday, though the wellhead differential rose 10 cents/b on a wider Brent/WTI spread.

OPEC oil exports fall to720,000 b/d in four weeks to May 17

OPEC crude exports, excluding those from Angola and Ecuador, are expected to average 23.45 million b/d over the four weeks to May 17, down 720,000 b/d from the previous four-week period, UK-based tanker tracker Oil Movements said Thursday. Compared with the same period a year earlier, the latest forecast from

Oil Movements shows a fall in OPEC crude exports of 670,000 b/d. Shipments from the Middle East over the four weeks to May 17 are expected to average 17.11 million b/d, down 690,000 b/d from the previous four- period of 2013, Middle East shipments are expected to register a decline of 670,000 b/d.

Train derailment Wednesday was carrying Bakken crude

The CSX train that derailed and caught fire Wednesday in downtown Lynchburg, Virginia, was carrying Bakken crude, the company said Thursday. The train, which had two locomotives and 105 rail cars, originated in the Bakken shale region in North Dakota, was handedoff to CSX at Chicago and was heading to Yorktown, Virginia, the company said in a statement.

About 15 of the rail cars derailed at 2:30 pm EDT (1830 GMT), CSX said. CSX said Thursday that it had safely removed the non-derailed cars from the scene and added that the National Transportation Safety Board is leading the investigation of the derailment.

Trade sources told Platts Wednesday that the train was headed to PlainsAll American’s terminal in Yorktown, which can unload 130,000 barrels a day of crude and is located on the site of Plains oil product terminal.

Four refineries on the East Coast can take crude by rail: Philadelphia Energy Solutions’s 330,000 b/d refinery in Philadelphia; Phillips 66’s 238,000 b/d Bayway refinery in Linden, New Jersey; Delta’s 185,000 b/d refinery in Trainer, Pennsylvania; and PBF’s 190,000 b/d refinery in Delaware City, Delaware.

A Phillips 66 spokesman said his company had no rail cars or crude on the derailed CSX train. A source familiar with operations at the Delta refinery said the crude was not destined for that facility.

Spokeswomen for Philadelphia Energy Solutions said the crude was not destined for the Philadelphia refinery. A PBF spokesman recommended logistic questions be directed to CSX.

 Exxon’s First-Quarter Profit Declines Less Than Expected

Exxon Mobil Corp. (XOM) posted higher-than-expected profit as international sanctions against Russian interests clouded the U.S. oil explorer’s efforts to tap some of the world’s biggest crude reserves.

First-quarter net income was $9.1 billion, or $2.10 a share, compared with $9.5 billion, or $2.12, a year earlier, the Irving, Texas-based company said in a statement today. Per-share profit exceeded all 20 estimates from analysts in a Bloomberg survey and surpassed the average by 22 cents.

Russia’s oil and gas riches are key to Chairman and Chief Executive Officer Rex Tillerson’splans for reviving output at the world’s biggest energy explorer by market value. Exxon’s global production has fallen in 10 of the past 11 quarters and net income is in the midst of the longest slide since the worldwide financial crisis of 2008-2009.

Tillerson, 62, slashed spending on drilling and acquisitions outside the U.S. by 41 percent to $5.2 billion and almost tripled asset sales to amass cash. The balance-sheet measures helped offset a larger-than-expected 5.6 percent drop in oil and natural gas production exacerbated by lower crude prices.

“Cash flow looks good and their projects are proceeding on schedule, so all in all it was a good quarter,” Brian Youngberg, an analyst at Edward Jones & Sons in St. Louis, said in a telephone interview today. Cost-containment and the absence of major deals akin to last year’s $3.1 billion Celtic Exploration Ltd. purchase in Canada were a boon, he said.

Gas prices are displayed as cars drive past an Exxon Mobil Corp. station in Cincinnati.... Read More

Revenue declined 1.5 percent to $106.8 billion.

Most Acreage

The company’s global production fell to the equivalent of 4.15 million barrels a day, the lowest first-quarter average since Exxon’s 1999 acquisition of Mobil. The company’s stock fell 1 percent to $101.41 at the close in New York trading. The shares have advanced 16 percent in the past year.

Tillerson and his management team have staked out their largest non-U.S. exploration claim in Russia, the world’s biggest source of crude last year, in a partnership with state-controlled OAO Rosneft. Exxon had exclusive exploration access to 11.4 million acres in Russia at the end of last year, according to a Feb. 26 filing with the U.S. Securities and Exchange Commission.

Exxon is allocating $39.8 billion to capital projects this year, including hundreds of millions for an exploratory well in Russia’s Kara Sea, above the Arctic circle, as part of a 29-year agreement signed with Moscow-based Rosneft in 2011.

So far, international sanctions levied against a group of Russian individuals and corporations -- including Rosneft CEO Igor Sechin -- in retaliation for Russia’s encroachment on Ukraine hasn’t dissuaded Exxon or other foreign energy producers from investing in Russia’s petroleum sector. However, Russian President Vladimir Putin hinted at greater risks ahead for those companies in remarks April 29.

Putin warned that further economic sanctions may lead Russia to reconsider participation by U.S. and European Union companies in energy and other key industries.

Exxon’s engineers and geologists laying the groundwork for exploration at various Russian sites haven’t been disrupted from their work by the diplomatic tensions and subsequent sanctions, David Rosenthal, vice president of the company’s investor relations, said during a conference call with analysts today.

Drilling Success

Exxon’s Russian drilling rights include 11.3 million acres in the Kara and Black seas under the agreement with Rosneft, and another 85,000 offshore acres beneath the Sea of Okhotsk near Sakhalin Island.

Worldwide, Exxon found commercial quantities of oil or gas in 67 percent of the exploratory wells it drilled in 2013, unchanged from 2012, according to the filing. At the same time, Exxon’s costs to produce the equivalent of a barrel of crude jumped to $11.48 last year from $9.91 in 2012.

Brent crude futures, the benchmark for more than half the world’s oil, declined by 4.2 percent to an average of $107.92 a barrel during the quarter, according to data compiled by Bloomberg. U.S. gas prices climbed 35 percent to average $4.712 per million British thermal units during that period.

Global demand growth for fuels to run trucks, trains, airplanes and cars slowed to 0.9 percent during the first three months of this year from 1.3 percent a year earlier, according to the International Energy Agency.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Steven Frank

US weekly imports of WAF crudes rise to 375,000 b/d: EIA

London (Platts)--1May2014/912 am EDT/1312 GMT

West African crude imports to the US rose to 375,000 b/d for the week ended April 25, up from 336,000 b/d the week prior, data from the US Energy Information Administration showed Wednesday.

Imports from Nigeria rose to 242,000 b/d, up from 219,000 b/d in the previous week and the highest since the week ended October 5, 2013.

Imports of Angolan crude rose to 133,000 b/d, up from 117,000 b/d. On a four-week rolling average basis, total West African imports rose to 261,000 b/d from 242,000 b/d.

The arbitrage of crude oil from West Africa to the US Gulf Coast and East Coast has historically been one of the major trade routes in the global oil market. At its peak in 1974, Nigerian and Angolan crude oil provided 21% of total US crude oil imports, with an average of 745,000 b/d being imported.

But imported volumes have been dropping steadily since 2011 as domestic US crude production has soared, displacing arbitrage barrels from Nigeria and Angola.

In 2013, US imports of Nigerian and Angolan crude oil comprised 5.71% of total US imports, averaging 441,000 b/d.

--Robert Beaman, robert.beaman@platts.com

--Edited by Kevin Saville, kevin.saville@platts.com

Platts Report: China Oil Demand Rose 0.5% in March Versus a Year Ago

Demand Contracts in First Quarter of 2014

SINGAPORE, April 25, 2014 /PRNewswire/ -- China's apparent oil demand* in March rose 0.5% year over year to 41.55 million metric tons (mt) or an average 9.83 million barrels per day (b/d), a just-released Platts analysis of Chinese government data showed.

The growth in apparent oil demand last month is significantly less than in previous years, when it averaged 1.9% in March 2013 and 4.2% in March 2012.

China's refinery crude throughput volumes last month rose 2.6% to 9.91 million b/d versus a year ago, according to the latest data from China's National Bureau of Statistics.

Oil product exports rose 3.4% year over year to 2.74 million mt in March, while imports of oil products slumped more than 24% on an annual basis to 2.37 million mt, a 19-month low, according to China's General Administration of Customs data released April 10. This made China a net exporter of oil products for the first time since early 2010, at 370,000 mt for the month. This compared with net imports of oil products of 480,000 mt in March 2013.

"The net export of oil products is evidence that China is now facing a period of overcapacity as oil product supply outpaces domestic demand," said Song Yen Ling, Platts senior writer for China. "Refiners are coping by sending more oil products overseas, as well as lowering their run rates."

The higher oil products exports came amid reports of notable inventory build of gasoil, gasoline and jet/kerosene and weaker-than-expected domestic oil consumption in the first quarter (Q1) of the year.

China's Q1 apparent oil demand slid 0.6% versus the same period a year ago to an average 10 million b/d, marking the first contraction in Q1 apparent oil demand since 2008. The decline in demand followed a slowdown in China's gross domestic product (GDP) growth from 7.7% in the fourth quarter of 2013 to 7.4% in Q1 2014.

Within individual oil products markets, apparent demand for gasoil in March fell an annual 0.8% to 3.43 million b/d. Net exports fell 15% from a year earlier to 340,000 mt and domestic production declined 1.2% to 14.62 million mt.

Apparent demand for gasoline continued robust last month, surging 12.2% year over year to 2.41 million b/d, supported by expansion in automobile sales. Domestic output by refiners rose 11.8% from March 2013 to 9.33 million mt, while net exports rose 5.9% to 540,000 mt.

Apparent demand for fuel oil moved in the opposite direction, sliding 7.7% year over year to 637,000 b/d, on the back of a 34.5% decrease in net imports to 720,000 mt. Domestic output rose more than 5% from a year ago to 2.39 million mt. The lower demand was due to reduced appetite by China's independent refiners, known as "teapots" and which use imported fuel oil as a major cracking feedstock. The teapot refiners have reduced their utilization in recent months on poorer demand and in response to increased access to crude oil, an alternate feedstock.

MONTHLY TRADE DATA IN MILLION METRIC TONS:

Sources: China's General Administration of Customs, National Bureau of Statistics, Platts

Month-to-month demand in China is generally viewed to be subject to short-term anomalies which are of interest and important to note, but which often fail to reveal the country's underlying demand trends. Year-to-year comparisons are viewed by the marketplace to be more indicative of the country's energy profile.

*Platts calculates China's apparent or implied oil demand on the basis of crude throughput volumes at the domestic refineries and net oil product imports, as reported by the National Bureau of Statistics and Chinese customs. Platts also takes into account undeclared revisions in NBS historical data.

The government releases data on imports, exports, domestic crude production and refinery throughput data, but does not give official data on the country's actual oil consumption figure and oil stockpiles. Official statistics on oil storage are released intermittently.

Platts releases its monthly calculation of China's apparent demand between the 18th and 26th of every month via press release and via its website. Any use of this information must be appropriately attributed to Platts.

Platts uses a conversion rate of 7.33 barrels of crude per metric ton, the widely-accepted benchmark for markets East of Suez.

ConocoPhillips 1Q production climbs, tops Street

The Associated Press

HOUSTON — Energy company ConocoPhillips said Thursday that its net income slipped in the first quarter on increased expenses, but revenue improved as production rose.

The Houston company said its quarterly performance benefited from increased average natural gas and bitumen prices. Its adjusted profit and revenue topped Wall Street's view.

ConocoPhillips earned $2.12 billion, or $1.71 per share, for the three-month period. That compares with $2.14 billion, or $1.73 per share, a year ago.

Earnings were $1.81 per share for the latest quarter when stripping out certain items. Analysts, on average, expected earnings of $1.56 per share, according to a FactSet poll.

Total costs and expenses climbed to $12.35 billion from $10.86 billion.

Revenue rose 10 percent to $16.05 billion from $14.65 billion, easily beating Wall Street's forecast for $10.62 billion in revenue.

Production from continuing operations totaled 1.53 million barrels of oil equivalent a day, excluding Libya. That's up 24 percent from the prior-year period.

Production rose for the Lower 48 states and Latin America and Europe. It was basically flat in Canada and in line for the Asia Pacific region and the Middle East. Alaska's production fell.

ConocoPhillips reiterated its full-year guidance for production from continuing operations.

The company's shares rose 35 cents to $74.76 in late morning trading. Its shares are up more than 5 percent so far this year.

Why Hasn’t The U.S. Gone After Gazprom?

By John Daly | Thu, 01 May 2014 21:35 | 1 

Amidst the deepening war of words over Moscow’s annexation of Crimea, U.S. President Barack Obama on April 28 added more Russian individuals and companies to a sanctions list that already included influential members of Russian President Vladimir Putin’s inner circle and Bank Rossiya, which has close ties to the Russian leadership. The new list freezes the assets of Igor Sechin, head of Russia's major oil company, Rosneft, six other individuals and 17 companies.

Significantly, the new U.S. list does not include Alexei Miller, CEO of the Russian natural gas state monopoly, Gazprom.

Although the European Union has imposed its own tough sanctions on 48 Russian individuals, Gazprom is arguably where daylight exists between the Obama administration and the EU on the issue of penalizing Moscow for its actions in Ukraine.

The numbers make it clear why. Russia is the EU’s third-biggest trading partner, after the U.S. and China; in 2012, bilateral EU-Russian trade amounted to almost $370 billion. The same year, U.S. trade with Russia amounted to just $26 billion.

More than half of Russia's exports go to Europe, and 45 percent of its imports come from Europe, according to the EU EUROSTAT agency. Out of 485 billion cubic meters of gas consumed by the EU annually, Russia supplies about 160 billion cubic meters, or almost one-third the total volume.

Germany, the EU’s economic powerhouse, has been explicit about the costs for the German economy from increased sanctions. Anton Börner, the president of Germany’s main trade group, BGA, warned that more than 6,000 German businesses with $105 billion of turnover are interlinked with Russia and stand to lose if sanctions are ratcheted up.

U.S. Representative Lois Frankel (D-FL), who recently visited Ukraine with a Congressional delegation, has offered the likeliest official explanation for why the White House left Gazprom and CEO Miller untouched in the most recent round of sanctions.

In an April 28 appearance on MSNBC, Frankel said, "I think our president is taking a cautious approach warranted because our European allies are...trade partners with Russia, they depend on Russia's energy. And so we have [to] be careful because sanctions against Russia also have the good probability of hurting our allies.”

Other members of Congress have shown less willingness to accommodate the EU’s delicate economic position. In recent days, senior members of the U.S. Senate have increased their calls for the White House to move against Gazprom. Carl Levin (D -MI), John McCain (R-AZ) and Bob Corker (R-TN) want Obama to use an executive order that allows him to punish broad sectors of the Russian economy in response to Russia’s actions in Crimea.

The lawmakers’ statements on the issue have been widely covered in the Ukrainian and Russian press.

In an April 12 letter to Obama, Corker, a ranking member of the Senate Foreign Relations Committee, said, “Unless Russia ends its destabilization of eastern Ukraine and drastically reduces troop levels on the Ukrainian border immediately, further sanctions against strategic sectors of the Russian economy, particularly targeting Gazprom and additional important financial institutions, should be imposed within days.”

After the latest round of U.S. sanctions this week, Corker repeated that call in a joint statement with Senator Kelly Ayotte (R-NH), the ranking member of the Senate Armed Services Readiness Subcommittee, in which he said, “Until Putin feels the real pain of sanctions targeting entities like Gazprom, which the Kremlin uses to coerce Ukraine and other neighbors, as well as some significant financial institutions, I don’t think diplomacy will change Russian behavior and de-escalate this crisis.”

During an April 25 visit to the Ukrainian capital, Kiev, Levin told reporters, “The existing authority is sufficient to take very strong sanctioning action against Russian banks that have correspondent accounts in the United States. The authority exists. It should be used, and that includes Gazprom.”

McCain advocated in an April 25 press release, “The United States needs to expand sanctions to major Russian banks, energy companies, and sectors of its economy, such as the arms industry, which serve as instruments of Putin’s foreign policy. NATO needs to move toward a robust and persistent military presence in central Europe and the Baltic countries, including increased missile defense capabilities. We need a transatlantic energy strategy to break Europe’s dependence on Russian oil and gas,” which would include sanctions against Gazprom, according to his office.

McCain recently suggested he has a broader agenda in mind when he said, “The strategy of the U.S. for saving Ukraine must be built in opposition to Russia's gas strategy, as this will be the end of Putin and his empire."

Given Gazprom’s centrality to the Russian economy, it’s unlikely that Putin won’t react if and when the company comes in for Western sanctions. In preparation for that possibility, Gazprom’s subsidiary, Gazprombank, Russia’s third largest, last month transferred nearly $7 billion to the Central Bank of the Russian Federation.

Gazprom has already warned that further Western sanctions could disrupt gas exports to Europe.

And Russian Natural Resources Minister Sergei Donskoi has made it explicit that there will be consequences for Western energy firms that comply with sanctions. Speaking on April 24 to journalists in Russia’s far eastern city of Birobidzhan, Donskoi said, "It is obvious that they won't return in the near future if they sever investment agreements with us, I mean there are consequences as well. Russia is one of the most promising countries in terms of hydrocarbons production. If some contracts are severed here, then, colleagues, you loose a serious lump of your future pie."

Donskoi also expressed the certainty that if Western firms leave Russia, other foreign energy companies would take their place.

That kind of threatening rhetoric will only make it harder for U.S. officials to sell an already nervous Brussels on the idea of more sanctions, if it comes to that, and on targeting Gazprom, in particular.

By. John C.K. Daly of Oilprice.com

The Future Still Looks Bright For Brazil’s Energy Giant, Petrobras

By Lisa Viscidi | Thu, 01 May 2014 21:44 | 0 

After many years of praise, Brazil’s national oil company, Petrobras, has come under increased criticism, with its weak profits, soaring debts and flat-lining oil production viewed as signs that the company is sinking under the weight of government intervention. But while there is cause for concern in the short run, Petrobras remains a strong company with abundant assets, world-class technical capabilities, and the ability in the long term to achieve its ambitious targets. Just like the irrational excitement a few years ago about Petrobras’ rise following the discovery of the massive pre-salt oil zone, today’s pessimism is greatly exaggerated.

It’s true that Petrobras, with one of the world’s largest corporate investment plans, is also the most indebted oil company on the planet, with debts of $114 billion. Yet it maintains investment grade from all the major rating agencies and has had no difficultly funding its debt – indeed, its latest $8 billion debt issue in March was three times oversubscribed.

This year, Petrobras trimmed its 2014-2018 investment plan to a still whopping $220.6 billion – mainly to cut back on downstream spending after it completed several major refinery investments. Cutting investments in the less profitable downstream business will reduce leverage and shore up its bottom line.

Fuel price caps have also forced Petrobras to import refined products at a loss due to the government’s policy of only gradually increasing retail fuel prices in line with international market prices – a policy used in many countries to keep inflation in check.

However, this is likely a temporary anomaly. From 2008 to 2011, Petrobras benefited from price controls, selling gasoline and diesel above market prices, and its board has approved a plan whereby Brazilian fuel prices will eventually be aligned with the international market again. Moreover, the recent downstream investments will allow Petrobras to reduce fuel imports, improving margins in the long-term.

Granted, there have been delays in starting production from new offshore fields: liquid output actually fell by 2 percent year-over-year in 2013, and the company missed its production targets for last year. But tremendous progress has been made on the operational side since the first major pre-salt discovery was made less than seven years ago. Pre-salt production has now surpassed 400,000 barrels per day – that’s almost a quarter of Brazil’s total output. Although output has been flat over the last few years, Petrobras brought five new production facilities on line last year and has six more scheduled to start up by the end of this year, meaning it is on track to meet its 2014 targets and increase cash flow.

Petrobras still has access to gigantic reserves and will eventually reach its production targets, even if not as quickly as many had hoped. The company ended 2013 with 16 billion barrels of oil equivalent of proved reserves boasting a 131 percent reserve replacement rate and reserves-to-production ratio of 20 years. Between 2016 and 2018, an additional 15 offshore projects are expected to bring some 2 million barrels per day of capacity online, and the company’s long- term production target remains an impressive 4.2 million barrels per day in 2020. Petrobras remains a leader in deepwater drilling capabilities, meaning it has the technological ability to develop these complex projects.

The delays and disappointments plaguing Petrobras today could have been, and indeed were, predicted back in 2007 amid all the exuberance over the pre-salt discoveries. Today’s disappointment stems partly from excessive optimism in the past, and has been used as a political tool to criticize the Dilma Rousseff administration.

In reality, although government pressure has played a role in increasing the operational and financial burden on Petrobras, the company remains on track to become a top oil producer.

By Lisa Viscidi

Lisa Viscidi is Director of the Inter-American Dialogue’s program on Energy, Climate Change and Extractive Industries: http://www.thedialogue.org/energy

Mixed Earnings Reports Suggest Big Oil May Have Peaked

By Nick Cunningham | Thu, 01 May 2014 21:55 | 0 

First-quarter earnings reports are in and the world’s biggest oil companies are reporting mixed results.

ExxonMobil, the largest producer of natural gas in the U.S., reported quarterly earnings of $9.10 billion, down 4.2 percent from $9.50 billion in the same quarter a year ago. Yet it beat Wall Street expectations, owing to a spike in natural gas prices during the winter and a boost in its quarterly dividend. The brutal winter in the eastern U.S. drove natural gas prices up, giving the company more revenue than expected.

Royal Dutch Shell also beat expectations, allowing its stock price to jump 3 percent after reporting. But in a sign of just how low expectations have fallen, Iain Pyle, an analyst with Bernstein Research, said Shell’s latest quarter “was kind of a quarter where everything went right,” but still saw its profit decline by 44 percent in the first quarter compared to a year earlier, according to the Wall Street Journal.

Chevron is due to publish its earnings on May 2, and investors have welcomed its announcement that it is boosting its quarterly dividend by 7 percent. However, the company issued an interim report in April and warned that things weren’t going so well. Chevron also had a very bad 2013; its net income for the fourth quarter dropped by 32 percent.

BP saw its quarterly earnings drop to $3.2 billion, a 24 percent drop from a year ago, but a 14 percent jump from last quarter. Its stock price climbed by 2.5 percent as BP also announced an increase in the quarterly dividend.

The results come as business activities are being complicated by geopolitical events. The escalating Western sanctions on Russia over its actions in Ukraine have injected uncertainty into the huge investments that BP, Shell and ExxonMobil have in Russia. “I don't think we will be jumping into new investments in the short term,” Royal Dutch Shell's chief financial officer, Simon Henry, said in a conference call on April 30.

From an investor’s standpoint, the earnings reports highlight a troubling trend: Several big companies are experiencing stagnating or declining oil production. ExxonMobil’s quarterly production on an oil-equivalent basis dropped 5.6 percent year-on-year. Shell’s was down 4 percent over the same timeframe. BP reported an 8.5 percent decline. ConocoPhillips had a modest decline.

“These companies are spending a lot of money and they aren't seeing the returns,” said Brian Youngberg, an analyst at Edward Jones, according to the Los Angeles Times.

Ultimately, the huge problem is the difficulty in finding new sources of oil. “Like its peers, (Exxon) is growth-challenged on the production front,” he added.

With fewer major new discoveries coming in, and legacy wells flat or declining, oil companies are seeing the cost of a barrel of oil rising. Their response appears to be moving to leaner operations, avoid huge expensive projects, and return profits to shareholders. ExxonMobil slashed capital expenditures by 28 percent for the quarter. Shell is undergoing a two-year, $15 billion divestiture campaign. BP plans on divesting $10 billion from its Alaskan assets, and returning much of the cash to shareholders.

Divestment has led to a flurry of deals in the first quarter – the most in over a decade, in fact. “Divestitures are driving activities as companies continue to back their core operations,” said Doug Meier of PricewaterhouseCoopers, according to Fuel Fix. “They’re shedding those non-core assets to reinvest in their core business or make profits available to shareholders.”

The inability to boost production has the companies spending less on new projects to reduce costs. This may soothe the concerns of investors in the short-term, but it means that the companies will not be able to lift production over the long-term. In any event, we may be hitting an inflection point; Big Oil’s size may have peaked, and to stay profitable, companies have no choice but to shrink.

By. Nicholas Cunningham of Oilprice.com