By Ikuko Kao and Osamu Tsukimori
TOKYO (Reuters) - Japan's top refiner Nippon Oil Corp. (5001.T: Quote, Profile, Research, Stock Buzz) will shift to investing in exploration and development to secure crude after high oil prices and cut-throat competition have boosted the costs of acquiring producing fields.
The company will invest at least 260 billion yen ($2.13 billion) in upstream oil and gas projects for three years to March 2011, its top executive told Reuters.
As part of its strategy change, Nippon Oil will reduce the number of retail stations and increase oil product exports, President Shinji Nishio said, adding that weakening domestic demand would trigger consolidation of Japan's refining industry.
Nishio said the company's upstream investments in three years to March 2008 have jumped to 263 billion yen from its original plan of 200 billion yen.
"We will actively continue to invest in upstream projects at least at that increased level. However, we will shift our focus to exploration and development from producing fields," Nishio said in a recent interview as part of the Reuters Energy Summit.
The revised investment includes Nippon Oil's recent acquisition of the K2 oil and gas field in the Gulf of Mexico from U.S. firm Anadarko Petroleum Corp (APC.N: Quote, Profile, Research, Stock Buzz).
Nippon Oil, along with Mitsubishi Corp. (8058.T: Quote, Profile, Research, Stock Buzz), paid $1.2 billion for a 23.2 percent stake in the field, which produces 40,000 barrels per day (bpd) of oil equivalent.
"Because of increased competition to secure natural resources and high oil prices... the value of many producing upstream projects reached levels which do not make economic sense and we have lost many recent bidding rounds," Nishio said.
Geographically Nippon Oil, which aims to double its oil and gas output to 300,000 bpd by 2015 from now, will focus on the Gulf of Mexico and Vietnam, where the company will start commercial production at the Phuong Dong field in September 2008.
"We see areas around this field as potential," Nishio said.
He also pointed to Europe's well-explored North Sea, where output is declining but niche players are looking to pick up smaller fields, as well as Oceania.
"Political risks in these areas are almost zero," Nishio said. "Many nationalizations of resource assets by central governments have happened... This energy nationalism is quite a concern."
Earlier this year, South American oil producer Venezuela sent troops to take over installations in the country valued more than $30 billion from foreign energy companies.
Bolivia has also nationalized its energy sector and Russia's state-backed Gazprom took over control of the world's largest liquefied natural gas project in far east Sakhalin from Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz).
DOMESTIC SALES TO FALL Continued...
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