Oil firms spending more, getting less

On top of the International Energy Agency report this summer warning of a worldwide "crunch" in oil supplies by 2012, we get this news:

Worldwide spending by companies on oil and gas projects increased to a record high last year, but resulted in a minimal increase in global reserves, according to a new study released on Wednesday.

John S. Herold, an oil and gas research firm, and Harrison Lovegrove, an industry advisory group, found that spending by the 228 global oil and gas companies surveyed increased 45 per cent to $401bn in 2006.

The report, which covered oil giants such as ExxonMobil as well as smaller independent exploration and production companies, stated that the record capital spending generated only a 2 per cent increase in reserve volumes to 263bn barrels of oil equivalent.

Let me consolidate that dry journalistic prose as follows:  Oil and gas firms spent 45% more last year, and they have only a 2% increase in reserves to show for it.  Furthermore…

The report’s sponsors said the gap between spending and reserve replacement reflected the higher costs of production at maturing fields with declining output. Oil and gas companies are also finding it more difficult to access new reserves in some countries, they said.

Translation:  Older fields are drying up, and the newer ones are under the control of socialists and nationalists like Hugo Chavez and Vladimir Putin, who've amassed have a singularly lousy record of playing ball with the Western oil majors.

Still, there are smaller energy services firms that stand to gain big from the trend.  Byron King from Outstanding Investments recommended one of them to his readers just yesterday.  It's the company that other oil and gas firms call after they've explored, gather their data and drilled their wells… and it comes time to get serious about getting the most product out of those wells.  Byron and co-editor Kevin Kerr also have a unique "wealth insurance" play on gold with a huge potential upside — and zero downside.  Here's where you can learn all about it.

The Daily Reckoning