OPEC Sends Big Oil Companies Back To The Field (XOM)(BP)

One of the solutions for fighting the high price of oil is to increase the supply. That seems simple enough, but it is expensive, at least for oil companies. OPEC is not lowering prices and demand from regions like India and China is rising.

Companies like Exxon (NYSE: XOM) are seeing margins squeezed at their refineries. Oil prices are high and if they pass that along to consumers in the form of $4 gas demand is going to fall. Shutting a refinery due to lack of demand is an expensive proposition.

To keep supply coming, oil companies are turning to a novel, but expensive, way out. They are finding ways to get more oil from dying fields. BP (NYSE: BP) now thinks it can dig another two billion barrels out of Prudhoe Bay. The means taking out heavier crude, drilling more wells, and using new and costly technology to make the field yield more than it could have a decade ago. One BP executive told Reuters "We’re still drilling 60 or 70 new wells a year and it comes down to a progression of technology, the resource value and the opportunity to access a very large oil in place volume using modern drilling techniques."

While bringing up more oil from existing fields is not a long-term solution to the problem of oil supply, it may extend current reserves for a few more years. That could put some pressure on OPEC and buy time for alternative energies.

That is, if any alternative energies will work on a large enough scale to matter.

Douglas A. McIntyre