* Shell has shed assets
* Smaller firms like EOG have surged
* Liquids more profitable
* Wells ready if prices rise
By Anna Driver and Eileen O'Grady
HOUSTON, March 7 (Reuters) - Oil and natural gas pumped fromNorth American shale has boosted the fortunes of smaller energyfirms, but the world's biggest oil companies, including and Exxon Mobil Corp, have been slower to realize thefull potential of the prolific rock.
In North America, the oil companies have broad exposure toprofit-sapping natural gas, a commodity that fell to the lowestlevel in a decade in 2012 but has since rebounded as a coldwinter depleted gas in storage. Sentiment about the fuel'sprospects is improving with the prospect of liquefied naturalgas (LNG) exports and increased industrial use, but muchuncertainty remains.
"I don't think I'm going out on a limb by saying, for themajors, with their DNA, it's quite an adaptation to move intothe resource-play environment," Maynard Holt, co-president ofenergy investment bank Tudor, Pickering, Holt & Co, told the IHSCERAWeek conference in Houston.
In the latest sign of struggle, BP said on Tuesday it willseparate its onshore U.S. oil and gas assets into a new whollyowned unit based in Houston, a move aimed at making the unitmore competitive and nimble.
Analysts at Bernstein Research characterized BP's onshorebusiness, which includes oil and gas properties in thegas-bearing Haynesville and Fayetteville shales as "anunderperforming business."
BP could have 1.35 billion barrels oil equivalent of provedreserves in the lower 48 states, which is 76 percent naturalgas, Bernstein estimates.
In contrast, investors tend to prefer smaller companies likeEOG Resources Inc, which have more exposure to moreprofitable shale oil. Over five years, shares of EOG have risen275 percent to $189 per share, while shares of Exxon have risen46 percent.
SHALE FOR SALE
The steep decline in natural gas prices from 2008 to 2013spurred companies to shift to drilling in rock that producesmore profitable crude oil or natural gas liquids and promptedcompanies like Shell to take a hard look at its North Americanacreage.
Andrew Mackenzie, the CEO of Australia's BHP Billiton Ltd said investors may have mixed views on North Americanshales and the company has sought to teach investors about them.
"There are some who like our shale business, some who mayhave said, 'You should have given us the money back or investedin other things,'" Mackenzie said in an interview.
"We have the ability to concentrate for now on the liquidsand make it a strongly cash flow business," he said.
Royal Dutch Shell PLC is in the process of sellingmore than 700,000 acres in Texas and Kansas following a reviewof its U.S. onshore shale projects that was announced in August.
"As we entered the shale market, we've taken a number ofpositions in shale gas assets and also a number of positions inwhat I call liquid-rich shale assets," Marvin Odum, Shell OilCompany president, told CERAWeek. "We're working our way throughwhat was, and still is, a very broad portfolio."
REBOUND READY?
As gas prices tumbled, companies focused their effortsdrilling in areas that produce more profitable crude oil ornatural gas liquids. But the recent uptick in natural gas pricescaused by cold weather in much of the country has left some moreoptimistic.
Exxon, the largest U.S. producer of natural gas, bought U.S.shale exploration and production company XTO Energy for $31billion in 2010 in a bet on swelling demand for natural gas.Ownership of XTO has broadened Exxon's exposure to low-pricednatural gas and cut into is production and profitability.
"That deal was not without some controversy," after the gasprice went against them, said Tudor Pickering's Holt.
"But from an operational standpoint and a strategicstandpoint, the deal looks better and better all the time," Holtsaid.
Exxon on Wednesday lowered its production outlook for 2017by 500,000 barrels of oil equivalent per day, partly due tolower spending on North American natural gas, analysts atBarclays said in a note to clients.
But the Irving, Texas company said on Wednesday it has theflexibility to tap an inventory of more than 15,000 locations itcan drill if demand and prices improve.
"As I'm sure you know, we have a deep ready-to-drillinventory of well locations and the ability to quickly increaseproduction to meet a fundamental change in demand," Exxon CEORex Tillerson told investors on Wednesday. (Additional reporting by Kristen Hays and Terry Wade inHouston; Editing by Jonathan Oatis)
