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The Peak Oil Squeeze

Big Oil's Last Resort

Written by Keith Kohl
Posted October 20, 2011 at 10:50AM

It's easy to watch the big fish panic. It can even be enjoyable.

We have front-row seats to their race against Peak Oil, so we might as well sit back and let them put money in our pockets...

Because that's precisely what they're doing.

In the past week alone, more than $25 billion in major oil and gas deals was announced.

But this news shouldn't have come as a shock. We've been witness to this scramble to secure energy production for years.

And now, they're getting downright desperate.

Norwegian Desperation

When Statoil announced their $4.4 billion deal for Brigham earlier this week, my immediate thought was: "It's about time!"

Norway is no stranger to oil production. Last year, the country averaged 2.1 million barrels per day, slightly less than Venezuela's daily production.

But because of the country's low consumption levels, Norway is able to export a large percentage of that production — and hold steadfast to its spot as the world's sixth largest oil exporter.

There is a bit of a snag, unfortunately. North Sea production peaked around 3.4 million barrels per day more than a decade ago.

Since then, production simply hasn't recovered...

norway oil decline

So it only makes sense that Statoil ASA (the Government of Norway is its largest shareholder) is making a run for U.S. shale.

Although Statoil's latest deal has given them a strong foothold in the Bakken oil play, this isn't their first foray into U.S. shale. Three years ago, the Norwegian company acquired a 32.5% stake in Chesapeake's Marcellus shale projects; a year later, they announced a $1.3 billion joint venture in the Eagle Ford shale with Talisman Energy.

The Best of the Worst

This flurry of M&A activity has been coming for awhile.

Last year, ExxonMobil (XOM) all but screamed over a bullhorn that without these acquisitions, Big Oil won't survive (I'll quote them again, in case you missed it the first time):

The corporation's reserves additions in 2010, the highest since the merger of Exxon and Mobil, reflect acquisitions, new developments, as well as revisions and extensions of existing fields resulting from drilling, studies and analysis of reservoir performance.

It's one of the only reasons the company has been able to increase reserves.

ExxonMobil's XTO acquisition accounted for 80% of the reserves added that year. Without it, the reserve-replacement ratio would have been less than half.

That deal to save their reserves cost $34.9 billion.

By the end of 2010, more than half of ExxonMobil's reserves were natural gas.

The picture would be even bleaker if we take away XOM's stake in the Canadian oil sands. Remember, these guys own 70% of Imperial Oil, which has a one-quarter share in the massive Syncrude project.

But hey — they're one of the largest publicly-traded companies in the world. What could possibly be going wrong?

Believe me, it gets worse...

One would expect Exxon — the leader of the supermajor oil companies — to increase production, especially considering the fact that they're spending more money than ever before.

But it simply isn't the case. Production has been flat, at best. For decades, the company's production has been stuck around 2.5 million barrels per day. Last quarter, it averaged only 2.3 million barrels per day.

The crisis that Big Oil is experiencing points investors in just one direction...

Their Greed, Your Profits

The race to control unconventional oil and gas resources across the globe is getting tighter every year.

Big Oil is after two things: land and production.

That's what BHP Billiton got with Petrohawk in the Eagle Ford; what ExxonMobil got with XTO Energy; and exactly what Statoil is getting with Brigham.

And just to clear up any confusion you might have on which performs better for investors, I'll let you see the profits for yourself:

small exxon vs stoclick image to enlarge

These major oil companies are forced to spend billions in unconventional oil plays just to keep their heads above water...

And it's creating a win-win situation for investors able to find those future targets.

Next week, I'll show you one of the best shale opportunities out there — and tell you how to get to it before Big Oil does.

Until next time,

kpk sig

Keith Kohl
Editor, Energy and Capital

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