Never have so many oil and gas companies spent so much to produce so little. That's the challenge facing Exxon Mobil, Royal Dutch Shell...

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Never have so many oil and gas companies spent so much to produce so little.

That’s the challenge facing Exxon Mobil, Royal Dutch Shell, BP, Chevron, Total and ConocoPhillips, which will spend a record $98.7 billion this year on exploration and production, Lehman Brothers estimates.

Costs more than quadrupled since 2000 as explorers targeted tougher reservoirs and demand rose for labor and material.

New supply from outside OPEC nations will meet about 20 percent of growth in world demand during the next four years, data from the International Energy Agency show. The lack of supply has traders betting oil will remain at about $120 a barrel for at least eight years, according to futures on the New York Mercantile Exchange.

The wagers are buttressed by delays at fields including Kashagan, a deposit in Kazakhstan where the budget has more than doubled to $136 billion and the first production is eight years behind schedule.

Water frozen half the year forced contractors to build artificial islands, while care must be taken to protect workers from the wells’ deadly hydrogen-sulfide fumes.

“The future is going to be very trying for the international oil companies,” said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington, D.C. “There’s no more easy oil for them. Kashagan is a shining example of the problems they face bringing new oil into play.”

Arjun Murti, an analyst with Goldman Sachs, predicted in a May 5 report that the failure to develop new energy sources may drive crude to between $150 and $200 a barrel within two years.

Challenging hunt

Oil companies are turning to more technically challenging fields as oil-rich nations limit access.

Russia is taking control of BP’s stake in the Kovykta gas field, a deposit in Siberia big enough to supply Asia for five years. Algeria has imposed a profits tax, and Venezuela seized four oil ventures from companies including Exxon Mobil and ConocoPhillips a year ago.

International oil companies could access only 7 percent of known world reserves in 2005, down from 85 percent in 1970 after Middle Eastern nations took control of their fields, according to a July report by the National Petroleum Council in Washington, D.C.

The 13 members of the Organization of Petroleum Exporting Countries (OPEC) held 919 billion barrels of oil as of 2006, or 76 percent of proved global reserves, according to BP. Add Russia, the No. 2 producer, and the total rises to 83 percent.

“Normally, high prices would mean higher supply,” said Fadhil Chalabi, executive director at the Centre for Global Energy Studies in London and a former Iraqi oil ministry undersecretary. “What is happening is something different. The international companies are denied access to areas of abundant oil within OPEC, and it’s getting costlier in other areas.”

Costs soar

The cost to find and develop a barrel of crude between 2000 and 2007 soared to $18 from $4, said Andrew Latham, vice president of exploration services at Wood Mackenzie Consultants in Edinburgh. Demand in the period climbed 11 percent, or 8.8 million barrels a day, according to the International Energy Agency.

Consumption will jump 8.5 percent to 95.8 million barrels a day by 2012, the figures show.

Higher prices for steel, cement and labor have contributed to inflation, Schlumberger Chief Executive Officer Andrew Gould said at a Washington energy conference Monday.

“As a very rough measure of this inflation, upstream spending increased by 120 percent between 2004 and 2007, while the number of wells drilled increased by only 52 percent,” Gould said.

Even as countries reclaim their reserves, many are relying on high oil prices rather than increased production to meet government budgets. Output in Russia is expected to fall for the first time in a decade, and Saudi Arabia’s decision this month to increase output by 300,000 barrels a day still won’t offset a 390,000 barrel-a-day drop in monthly OPEC production in April.

“This is a huge issue,” said Joseph Stanislaw, CEO of JA Stanislaw Group and former head of Cambridge Energy Research Associates. “We don’t have access to those areas to push the peak production higher and higher.”

Exxon Mobil could “do even more if governments provide access to further quality opportunities,” said Tony Cudmore, a spokesman for the Irving, Texas-based company.

Shell CEO Jeroen van der Veer said in January the company has to deal with state-run companies demanding better terms when negotiating energy deals and that this trend will continue.

More demand

During the Arab oil embargo of 1973-1974, soaring oil prices cut consumption by about 2 percent, International Energy Agency Chief Economist Fatih Birol said in Houston on May 6. This isn’t happening today because of demand in emerging economies, where subsidies blunt the effect of higher oil prices, he said.

“The international oil companies cannot dictate the tempo anymore,” said Fadel Gheit, an analyst at Oppenheimer & Co.

“They can try projects that didn’t work two years ago, but it’s not a question of money. They don’t have access to resources.”