THE WALL STREET JOURNAL: Kerr-McGee: “The world's oil companies are having a hard time finding oil. So how come Kerr-McGee of the U.S. is getting rid of its North Sea oil fields? And why were none of the oil majors queuing up to buy them?”: “Some, like Shell, have tied their hands with lofty production promises to shareholders.”: Posted Tuesday 9 August 2005

The world's oil companies are having a hard time finding oil. So how come Kerr-McGee of the U.S. is getting rid of its North Sea oil fields? And why were none of the oil majors queuing up to buy them? Most of the fields have been snapped up by a Danish shipping company. And it was a similar story when Exxon Mobil sold its Texas fields earlier this summer to another minnow, Occidental Petroleum.

Kerr-McGee's auction attracted only minor players partly because the fields in question were relatively small and mature. So a large oil company wouldn't be able to get much more out of them than a small one. This also helps explain why Kerr-McGee is selling in the first place. Furthermore, the $3.5 billion (€2.83 billion) proceeds will reduce its debt, giving it greater flexibility to invest in higher-growth opportunities, such as the Gulf of Mexico. Likewise, Exxon says it plans to recycle the proceeds from the Texan sale into higher-return projects.

But price was another deterrent to the majors. AP Moller-Maersk is paying over $15 per barrel of proved reserves for the Kerr-McGee's North Sea assets. To justify that, the Danish shipping company must believe that the long-term average oil price will stay above $40 to $45 a barrel. None of the oil majors, or their investors, appear to think the oil price will be that high in the future.

In that case, shouldn't these giants be following Exxon and selling their more mature fields? Perhaps. But don't expect a rush of spring-cleaning deals. The majors already have more cash than they know what to do with. So there isn't a strong incentive to sell. Some, like Shell, have tied their hands with lofty production promises to shareholders. Selling reserves, even at a high price, would immediately decrease their production profiles until they found better opportunities elsewhere. Still, it would allow majors to concentrate on what they do best: finding new oil.

Mike Verdin, Fiona Maharg-Bravo, Robert Cyran

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