Through mergers and acquisitions, most of the top 10 oil and gas companies have made concerted efforts to achieve higher returns and greater cost efficiency, and they now hold the financial ability to strengthen their portfolios even more, according to a study by PIRA Energy Group, a New York-based energy consulting firm.

To do that however, PIRA’s study found that natural gas production has increased for the majors and “will continue to increase in importance due to its status as the preferred energy source.” PIRA said companies with significant gas in their portfolio possess “competitive advantages.” Companies with below-average gas reserves, including ChevronTexaco on a worldwide basis and Royal Dutch/Shell Group in the United States, “must consider and implement acquisitions to address weaknesses in their gas reserve base.”

PIRA’s study, released on Thursday, found that “many of the 10 now possess the financial might for additional M&A activities to further strengthen their portfolio, lower their cost structure (again) and improve their competitive positions and risk profile such that the market will reward them with higher P/E [price to earnings] ratios.”

The challenge, according to “Market Dominance and Success: Strategies of the World’s Top 10 Energy Companies,” will be to “develop, execute and deliver on strategies that provide competitive advantages.” The report assesses overall corporate, upstream and downstream strategies designed to improve share performance, identifying specific actions taken by each company to improve efficiencies, results and market valuations. The study underpins the assessments with profiles that benchmark the companies, called “The PIRA 10,” based on eight key financial performance indicators, nine operating factors and four risk criteria.

“PIRA goes much further by assessing the uniqueness of each company’s strategy and the potential these plans hold for future growth, all done under the structure and prism of our fundamentals analysis and price forecasting, and understanding the industry and company critical success factors,” said Gary Ross, PIRA CEO.

Using its analysis, the PIRA 10 were ranked and rated for total points as follows: Exxon Mobil, 132; BP, 130.5; Royal Dutch/Shell Group, 126.5; TotalFinaElf, 102; ChevronTexaco, 88; ENI, 94.5; COP, 90; Repsol and Marathon Oil (tied), 73.5; and Amerada Hess, 68.

Key findings concluded that a company’s capital-employed structure and operational integration are “key” to evaluate their operations and opportunities. For example, ENI’s “large and profitable” natural gas operation constitutes about 30% of its capital-employed base; TotalFinalElf is “significantly” exposed to petrochemical margins with more than 20% of its capital base there; and Marathon is “most exposed to downstream operations,” with 40% exposure in that sector.

PIRA also found that “risk profiles” for each company will change as “more production and proven reserves will come from more uncertain areas,” including West and Northern Africa and the Caspian Sea. Production increases are centered in these areas for all companies except Repsol, ConocoPhillips and BP.” Meanwhile, Repsol has “significant risk exposure in South America, while BP is the only company to improve its upstream risk profile from additional production in the Gulf of Mexico and [natural gas liquid] operations at Trinidad.”

Bill Kraeff, managing director of PIRA’s project consulting, and Carmine Rositano, senior adviser, were the principal authors of the study. To learn more about it, visit the web site at www.pira.com.

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