Fitch: Cash-rich energy firms will stay in buy-back mode

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The world’s largest energy companies, flush with cash from record commodity prices, probably will boost share buybacks next year as investment opportunities dwindle in oil-rich nations, according to the credit-rating company Fitch Inc.

Governments from Venezuela to Kazakhstan are restricting access to oilfields and demanding higher royalties to boost revenues and increase their influence in international political circles, a team of Fitch analysts led by Sean Sexton said in an annual petroleum outlook released Tuesday. „These more challenging terms make it harder for the majors to meet cost-of-capital criteria on new investments and we believe could underscore the trend of higher buybacks,” the analysts . The world’s five biggest oil companies by sales - Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp. and ConocoPhillips - spent $41.4 billion on buybacks during the first nine months of this year, or more than $190 million a day, according to data compiled by Bloomberg.

Sexton’s team of analysts in Chicago, London, Warsaw and Barcelona correctly predicted a year ago that profit growth would slow for US oil and natural-gas producers in 2007 amid surging costs for drills, pipes and work crews. Escalating costs will challenge energy companies in 2008 and may force some projects to be postponed, the analysts said in Tuesday’s report.

Houston-based ConocoPhillips, the smallest of the Big 5, had the largest increase in buybacks so far this year, lifting spending by more than 560% from January through September of 2006. Exxon Mobil, the world’s biggest oil company, posted a 17% increase. Chevron raised buybacks by 33%. The Hague-based Shell and BP, the second- and third-largest oil companies, reduced spending on share purchases during the first three quarters, according to data compiled by Bloomberg.

Benchmark West Texas Intermediate oil probably will average $70 a barrel in 2008, down from an average of $71.61 so far this year, the Fitch analysts said. Crude prices will decline as new discoveries add to supply and high prices erode demand, reaching $60 a barrel in 2009, the report said. Natural gas from the benchmark Henry Hub in Louisiana will average $7 per thousand cubic feet next year before dropping to $5.50 in 2009 and $4.50 „over the longer term,” the report said. The price estimates „have a more conservative slant” because they are used for modeling purposes and to rate debt, Fitch said. „It also represents our belief that prices will ultimately revert to more historical levels driven by fundamental supply and demand forces,” the report said. (canada.com)

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