Several energy companies have reported a decline in oil and gas production in 2011, a trend that is not valued highly by investors. The reasons for these declines are complex and vary from company to company, and don't necessarily validate the conventional wisdom that it is getting more difficult to find and develop oil and gas resources. (To know more about oil and gas, read Oil And Gas Industry Primer.)

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Production Decline
Marathon Oil (NYSE:MRO) reported production available for sale of 403,000 barrels of oil equivalent (BOE) per day in 2011, down from 415,000 BOE per day in 2010. This decline stemmed from the company's operations in Libya, which were impacted by that nation's civil war.

Marathon Oil reported production of only 8,000 BOE per day from Libya in 2011, a sharp decline from 46,000 BOE per day in 2010. The company did not produce anything from Libya in the fourth quarter of 2011. Marathon Oil was kind enough to strip Libya production out from its "production available for sale" report, which leaves the company with 3% growth in 2011 over 2010.

Chevron (NYSE:CVX) also experienced lower production in 2011, reporting 2.67 million BOE per day, down from 2.76 million BOE per day in 2010. The decline in production occurred in the company's U.S. and International segments.

Although Chevron saw several oil and gas projects start up in the U.S. and abroad during the year, these were not enough to offset normal field declines and maintenance-related downtimes in several other areas.

ConocoPhillips (NYSE:COP) reported average production of 1.62 million BOE per day in 2011, down from 1.75 million in 2010. Although the company didn't go into detail on the reasons for the decline, ConocoPhillips was also hurt by a suspension of operations in Libya. The company saw its oil and natural gas liquids production decline here from 46,000 barrels per day in 2010 to 8,000 barrels per day in 2011.

ConocoPhillips may escalate its growth rate over the next few years, as the company is in the midst of a separation and will soon spinoff its downstream businesses into a separate public company.

Hess Corporation (NYSE:HES) was also impacted by the situation in Libya. The company reported total production of 370,000 BOE per day in 2011, down from 418,000 BOE per day in 2010. Hess Corporation suspended production from its Libyan properties in March 2011 as the civil war escalated in that country.

Hess Corporation has established positions in several domestic unconventional plays, including the Eagle Ford Shale and the Bakken. Unfortunately for Hess Corporation, growth from here was unable to make up the shortfall from Libya. This sluggish growth rate may change soon for the company, as Hess Corporation expects production from the Bakken to reach 120,000 BOE per day by 2015, up from 30,000 BOE per day in 2011.

The Bottom Line
Although it's never a good thing when an energy company reports lower oil and gas production, these declines are sometimes taken out of context. Investors should avoid any misinterpretation of this trend by drilling deeper into the company-specific causes. (For additional reading, check out A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Tickers in this Article: HES, MRO, COP, CVX

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