According to Bloomberg: “Gustav is expected to reach Louisiana next week, passing through a region home to a quarter of U.S. oil output and 14% of natural gas production.”

Hurricanes pass. But over the long term, says energy and oil expert Byron King, we are facing a “profound change” in the future availability of oil. That’s because Western oil companies are being kept away from resources by uncooperative states…

This from Byron’s Energy and Oil blog:

The key strategic development in the first decade of the 2000s has been, arguably, the concept of “resource nationalism.” That is, in the many nations that were formerly friendly toward Western companies, the attitudes toward foreign investment have fundamentally changed. Western oil companies have found themselves squeezed in resource-rich areas.

Western companies have experienced outright nationalizations, such as what occurred with Exxon Mobil and ConocoPhillips (NYSE:COP) in Venezuela. Or Western companies have been shown the door through intimidation and bullying legal tactics under the guise of “tax laws” or “environmental enforcement,” such as what happened with Shell Oil Co. (NYSE: RDS.A / RDS.B) at its Sakhalin project in Russia.

Even Brazil has shown its nationalistic teeth to foreign investment. Recently, Brazil withdrew numerous areas from prospective lease sales after it became apparent that the odds of finding oil were quite good. Why not just save it for Petrobras (NYSE:PBR)?

Whatever the case might be, Western companies have been shunted aside or, in the best cases, forced to renegotiate contracts on less favorable terms. The traditional model of resource development, in which Western companies obtain legal title and control over oil and gas deposits in the ground, is fighting a losing battle. Assertive host governments are gaming the rules to favor their state-owned national oil companies (NOCs).

As recently as the late 1970s, Western oil companies controlled well over half of the world’s oil production. But now the NOCs – such as Saudi Aramco, National Iranian Oil Co., Kuwait Oil Co., Petroleos de Venezuela, Petroleos Mexicanos (Pemex), etc. – control over 85% of the world’s oil resources. Western majors control about 7% of the world’s oil resource base.

All the while, oil output from mature regions is in decline. From the North Sea to the Alaska North Slope, the Western oil companies are faced with lower volumes from existing oil holdings. And there is a much thinner book of potential business elsewhere in the world. According to Amy Myers Jaffe, who studies the oil business from her chair at Rice University, “This is an industry in crisis.”

This sense of crisis also helps explain why Western oil companies are fighting to expand their options for offshore drilling in the U.S., as well as to expand access to areas like northern Alaska. The U.S. offshore, and other frontier areas such as the Arctic National Wildlife Refuge (ANWR) are among the few options remaining for Western oil companies.

So one key point that the Western oil industry makes is that its resource base and reserves are in decline. And over the medium to long term, this means that the economic importance of the Western companies will erode. Despite any plans or efforts at conservation and efficiency, as well as a large-scale shift to alternative energy sources, the Western world will become increasingly dependent on NOCs for oil.

From the standpoint of energy and strategy, this will not be a good thing for the West.

Source: Peak Oil, Politics, and U.S. Energy Supply

Crude oil futures gained $1.66 to settle at $114.53 a barrel on the Nymex. The euro, meanwhile, inched up 0.1% against the buck, off a six-month low of $1.4630.

Energy and oil expert Byron King says investors can expect oil to continue to head northward for all the familiar reasons. Oil’s long-term fundamentals are little changed since hit spiked to $147 a barrel at the end of July. And you can now pick up resource plays in 2008 at 2005 prices…

It’s not like anyone is finding new large oil deposits out in exploration land. Indeed, a whole lot of looking is leading to not very much finding in the exploration patch.

The big oil companies are taking oil out of the ground. But generally, they are not replacing their reserves through reserve growth or resource expansion. To the extent that the oil companies are expanding reserves in the short term, it’s by searching further out in the ocean or further north in the ANWR And that raises the cost structure for production.

It’s a rare oil company that replaces its annual output with new reserves.

Compounding the problem, much of the world is off-limits to the traditional exploration and production model. The large national oil companies (NOCs), such as Saudi Aramco, Sonangol, Petroleos de Venezuela, Gazprom (LON:GAZP), Rosneft (LON:ROSN), etc., control the bulk of the world’s resources. About 85% of the world’s oil and gas reserves are controlled by NOCs. About 7% of the world’s hydrocarbon reserves are controlled by the Western companies.

Working Hard in a Tough Environment

So the traditional Big Oil outfits (Exxon Mobil <NYSE:XOM>,Shell <NYSE:RDS.A /RDS.B>, BP, Total <NYSE:TOT>, etc.) are scrambling hard to replace the reserves that get pumped out via normal production. Even in the places where the Western companies can operate, it’s no picnic.

The Washington Post — in an editorial, no less — was downright sympathetic as it described the difficult operational scenario for Shell Oil Co. on a major lease in the U.S.:

“The five leases that have made up the Shell Perdido project off Galveston since 1996 are not classified as producing. Only when it starts pumping the equivalent of an estimated 130,000 barrels of oil per day at the end of the decade will it be deemed ‘active.’ Since 1996, Shell has paid rent on the leases; filed and had approved numerous reports with the MSS [Minerals Management Service], including an environmentally sensitive resource development plan and an oil spill recovery plan that is subject to unannounced practice runs by the MMS; drilled several wells to explore the area at a cost of hundreds of millions of dollars; and started constructing the necessary infrastructure to bring the oil to market.”

The Washington Post concluded, “The notion that oil companies are just sitting on oil leases is a myth.”

So it’s tough out there in the field. It’s hard work to find reserves and lift them to the surface. There are rising production costs, and now the producers are selling into a declining market price.

Stock prices are down. Yes, it hurts if you’ve been buying shares in the past year or so. But the other way to look at it is that some great companies are now on sale. You can pick up resource plays in 2008 at 2005 prices.

Keep your eye on the long term, and don’t panic out of any buying opportunities.

Source: Oil Exploration – A Lot of Looking, Not Much Finding