For many of the integrated oil companies, strong balance sheets and diverse operations helped most weather commodity-price fluctuations, political dramas and even the finicky investors during the second quarter. Several of these major companies reported significant production growth over the same period last year, with natural gas volumes driving the boost. Deutsche Bank analyst Paul Sankey says the global integrated majors are developing close to $550 billion of projects now, totaling some 20 million barrels of oil equivalent of growth in daily production. This is up from $330 billion for 29 million in 2002. "There is a very clear story here for service names, and, within our analysis, we identify the geographic shifts in spending," he says. "The biggest move is back to North America, and away from Latin America. However, that is driven by heavy-oil sand and is more about steel and cement demand, than oil service. High oil prices have clearly increased deepwater and conventional oil opportunities and spending, particularly in West Africa, the Caspian and Russia." In spite of the increase in spending, Sankey adds, "it's hard to see much upside in these oils-even the ones we like." His top picks are Occidental, ExxonMobil and Marathon. "We believe that the proven development of a better spare-capacity cushion in world oil markets-as tested by Prudhoe Bay-should combine with slowing demand into lower oil prices and refining margins as we exit the peak driving season demand. To us, the risk here is that this lower price environment is accelerated by terrorism, plague, floods or the collapse of the U.S. property market, triggering recession." For more on this, see the October issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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