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Page added on May 6, 2016
Why Oil Companies Should Stop Looking For Oil
Oil companies are getting hammered by investors for being oil companies.
The price of a barrel of crude is down 60 percent in the last two years. The New York Stock Exchange index for oil and gas stocks has fallen about 25 percent over the same period. Exxon Mobil has been downgraded by Standard and Poor’s for the first time since the 1930s. Royal Dutch Shell reported Wednesday its earnings fell 58 percent in the first three months of 2016 from the same period a year earlier. The Paris climate treaty aims to keep global warming below 2 degrees Celsius by cutting fossil fuel emissions. Even Saudi Arabia is trying to get out of the oil business.
How can oil companies react to that sort of decline? They could quit spending billions of dollars to find oil that may eventually be worth nothing, according to Carbon Tracker, an environmental think tank.
Telling an oil company to stop looking for oil is a bit like wanting a car to become a bicycle. Searching for oil in remote, harsh locations is what oil companies have built themselves to do. But Carbon Tracker says in a report released Wednesday that companies may indeed give up ambitious, expensive exploration because, in part, such a move could be profitable.
The world’s seven largest publicly traded oil companies could boost the market value of their assets by a combined $100 billion if they built their businesses around the assumption that the world’s economy will become low-carbon, according to Carbon Tracker’s financial analysis. That would mean they would have to stop spending billions of dollars trying to find new, expensive sources of oil and instead rely on deposits that are easier to reach.
It may seem counterintuitive to think that oil companies would be worth more if they cut back on their perpetual search for places to drill new wells. But it makes sense in a world that responds to emissions restrictions by reducing the need for oil.
Carbon Tracker estimates $2 trillion worth of energy assets could be rendered essentially worthless if climate change is addressed. That means petroleum deposits claimed by oil companies would be stranded assets — something that has become obsolete and must be recorded as a financial loss.
Some big oil companies are beginning to acknowledge that climate change poses a risk to their usual way of doing business. But the industry is still a long way from making the huge shift that Carbon Tracker argues would be truly beneficial to shareholders.
42 Comments on "Why Oil Companies Should Stop Looking For Oil"
onlooker on Fri, 6th May 2016 6:11 am
So they put a positive spin on it, saying Oil companies will be more profitable NOT searching for oil. The reality goes beyond the obvious economic justification for not searching for expensive to find, access and produce oil. It is a sign of the end of the Oil age, that oil companies simply are becoming more marginalized and their product more expensive to society and less attractive to society. The downward slope of peak oil has always been about the peak oil/economic dynamic. As other knowledgeable posters here have highlighted.
Davy on Fri, 6th May 2016 6:36 am
“The world’s seven largest publicly traded oil companies could boost the market value of their assets by a combined $100 billion if they built their businesses around the assumption that the world’s economy will become low-carbon, according to Carbon Tracker’s financial analysis”
Typical BS out of the neo-green-economically liberal academic elite deceived modernists who want something for nothing. You don’t stop oil and start building something new out just like you don’t leave Earth and go to Mars. You need oil to build something new out just as you would need earth support to go to Mars. Both are fantasy anyway but just examples of Hollywood type insanity.
We are in an existential catch 22 and we are not going to get out of it. We can try to make the results less bad and the worst that will happen farther out. This will be a tradeoff. If you want less carbon for an unknown of climate mitigation then we are going to have more deaths. Oil equals food and economic activity. It takes food and economic activity to support a population. You can’t tell oil companies to shut down their oil efforts and switch to alternatives and remain profitable because society will not remain profitable from the systematic economic disruption.
Oil is a foundational resource required for all activity. There are no other alternatives. The current green narrative of alternative energy is a blatant deception without a basis in reality. It is just more of the techno exceptionalism we have been involved in since the advent of hyper industrialization. This hyper industrialization is hitting limits and diminishing returns. We are seeing this everywhere and still thinking we can tech our way out of it. We are lying to ourselves and the results of this lie will be deadly. We must make alternative arrangements now before it is too late. It may already be too late but we should try.
rockman on Fri, 6th May 2016 6:42 am
“Carbon Tracker estimates $2 trillion worth of energy assets could be rendered essentially worthless if climate change is addressed.” And once again the use of that utterly meaningless word “if”. LOL. Once again the blind (CT) leading the blind (Huff). The profitability of oil/NG exploration is not and has never been a function of the price of the oil or NG. It has always been determined by how much a company finds vs how much it spent to do so. Speaking of being counterintuitive: historically the higher prices of oil/NG typically led to lower profitability. How many articles have we seen offering that the shale plays were marginally profitable WHEN THE PRICE OF OIL/NG WAS HIGH?
So let’s look at the other side of the equation. In the late 80’s when NG was selling for less than $1/mcf the Rockman generated the highest rate of return of any project he had worked on in the previous 12 years. How? By successfully drilling 23 out of 25 wildcats. The Rockman began using a very common offshore geophysical technique that almost no company had employed onshore. Again, why? Because the small companies that drill for relatively small onshore reserves didn’t use expensive seismic data. And the big companies that did weren’t interested in chasing small onshore reserves. Thus a perfect storm developed for the Rockman: 10 years of offshore seismic interpretation followed by consulting for small onshore exploration companies.
Consider the most profitable discovery: sold the NG initially for $0.90/mcf but the total cost to develop the production was $0.12/mcf. IOW sold NG for more than 7X what it cost to develop. And the really big factor: low development cost. During the recent drilling boom the same wells would have cost (adjusted for inflation) about 8X as much to drill as what it cost the Rockman. Consider the Rockman’s current project of horizontally redeveloping a 66 year old conventional oil field. During the boom the drill rig would have cost $18k/day vs $10k/day now. And the specialized directional drilling equipment that was $24k/day and was just offered the same equipment for $8k/day. And all thanks to the collapse of the Eagle Ford Shale play.
So where are the surviving companies going to find additional oil/NG? They don’t need to look for it: it has already been found. Consider what Shell Oil has accomplished this year: they bought BG for $54 BILLION and increased their oil/NG production 17%. While that may not sound like much it is a huge volume given how much the company produces. A volume they could have never developed with a drill bit even at the height of their spending. And how much are they spending today? The company just announced another 2016 budget decrease to $30 BILLION. Got that: bought BG this year for $54 BILLION but will spend on $30 BILLION on all their other projects combined. Big Oil plays the long game: how much do you think all that BG LNG Shell just acquired will be worth in the next 5 to 10 years?
This dynamic has been used in the oil patch since the day more than 100 years ago when Col. Drake drilled that first oil well. Acquisitions during busts have always been the source of huge reserve increases for the bigger companies. How do folks think two companies (Exxon and Mobil Oil) became one company (ExxonMobil) as a result of the 80’s bust? Can some folks remember Texaco, Getty Oil, etc.? That was the natural evolution of the oil patch for decades and will continue for decades to come. Consolidation isn’t a new dynamic: it’s been an ongoing process since the days of the “Seven Sisters”.
Just another article from some armchair “experts” who actually know very little about the history of the industry.
makati1 on Fri, 6th May 2016 7:01 am
When you stop increasing your production, you are sure there will be no increased demand. Apparently that is finally being realized by the hydrocarbon industry as a whole. The customer base is shrinking and so must production. It is not “climate change” that is cutting their business, it is the overwhelming debt of their consumer base.
Dredd on Fri, 6th May 2016 7:37 am
Oil reservoirs in an enlightened world that does not want to commit suicide/ecocide id like knowledge that cannot be used (Top Secret, NoForn, Eyes Only, classified).
It isn’t marketable.
At the moment what prevents the enlightenment is authoritarianism of General Jesus (The Authoritarianism of Climate Change).
“Enlightenment is a destructive process. It has nothing to do with becoming better or being happier. Enlightenment is the crumbling away of untruth. It’s seeing through the facade of pretense. It’s the complete eradication of everything we imagined to be true.” – Adyashanti
geopressure on Fri, 6th May 2016 8:20 am
Penzoil & Texaco had a HUGE fight over Getty…
@ one time, the buyout of Getty Oil & the Anne Getty Trust was the largest corporate transaction in history…
rockman on Fri, 6th May 2016 8:26 am
Oil reservoirs in an enlightened world that does not want to commit suicide/ecocide…It isn’t marketable.”
And yet this world has existed since the beginning of the petroleum age and continues to this day as indicated by the world currently consuming more oil then ever before.
Consuming more oil then ever before doesn’t seem to fit the concept of it not being “marketable”.
PracticalMaina on Fri, 6th May 2016 8:38 am
Who knows Rockman, maybe in another 10 years the US government will be forced to nationalize Exxon-mobbil in order to provide fuel to fight fires, caused largely by their own cover up, and fight wars and grow food.
Boat on Fri, 6th May 2016 8:49 am
Demand continues to grow over 1 mbpy. This will continue. Electric cars and nat gas may bring peak oil but there will still be a 100 mbpy market left to drill for.
onlooker on Fri, 6th May 2016 9:06 am
Here is the biggest reason Oil companies should STOP looking for oil or producing it.
https://robertscribbler.com/2016/05/02/arctic-sea-ice-is-falling-off-a-cliff-and-it-may-not-survive-the-summer/
Arctic Sea Ice is Falling off a Cliff and it May Not Survive The Summer
Kenz300 on Fri, 6th May 2016 9:09 am
Fossil fuel companies are spending millions to spread doubt about Climate Change……
4 Ways Exxon Stopped Action on Climate Change
http://ecowatch.com/2015/11/27/exxon-stopped-climate-action/?utm_source=EcoWatch+List&utm_campaign=1d016dacb9-Top_News_11_28_2015&utm_medium=email&utm_term=0_49c7d43dc9-1d016dacb9-86023917
Kenz300 on Fri, 6th May 2016 9:10 am
The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them. Climate Change is real….. it will impact all of us…
It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..
The world is moving to embrace alternative energy sources…….. the fossil fuel companies can transform themselves into “energy” companies or they can die a slow death. As Climate Change impacts more people there will be a bigger backlash against fossil fuels.
Boat on Fri, 6th May 2016 9:16 am
PracticalMaina
The US gov dosent grow food. Our farmers do a great job. The US is a major exporter of food.
I would like to see the gov drill DUCTs on gov land. Sell oil when it’s high and cap them when it’s low. This would be a better revenue stream than leasing. Better for national security as well.
PracticalMaina on Fri, 6th May 2016 9:19 am
No shit the government doesn’t grow food, I am saying we could see dramatic climate shift in the near future that changes everything. I would like to see the federal government not sell any hydrocarbons off federal land. Just another form of subsidy.
ghung on Fri, 6th May 2016 9:51 am
In a sense, the government does grow food. The SNAP (foodstamp) program alone was a nearly $70 billion ‘subsidy’ to the US food sector in 2015. The Agriculture dept budget for 2016 is $154 billion (actually about the smallest slice of the federal spending pie). Without those ‘subsidies’, your food would be a lot more costly, here in the US, and there would be fewer people producing your food.
PracticalMaina on Fri, 6th May 2016 9:58 am
Are they no longer into the subsidies where they pay certain farmers to rest fields to protect crop prices? Did that get replaced with lets grow corn and waste resources in pursuit of ethanol?
shortonoil on Fri, 6th May 2016 10:09 am
In 2013, the last year for which there is available data, the oil industry replaced 1 barrel for every 8 that they extracted; and that cost them about $20/ barrel to it. At a $43/ barrel selling price there would not much be much sense in investing into additional E&P. The oil age ends when a barrel of oil no longer provides enough energy to pay the economy to acquire it, or which is the same as saying that when oil producers can no longer make money producing oil. In the extractive resource industry not being able to afford to replace extracted reserves is the point when where they are no longer making money; they are just turning assets into cash.
http://www.thehillsgroup.org/
ghung on Fri, 6th May 2016 10:15 am
Keeping things in perspective, the agriculture dept is the smallest of the discretionary sectors in terms of budget. More than half of the discretionary budget is defense spending, dwarfing agriculture. Direct subsidies to food and agriculture are 1.18% of the discretionary budget while defense dept is 53.71%, not including veterans benefits-5.86% (2015). If we want to go after waste and abuse, I’m not sure that agriculture is the best place to start, even though that’s what they are doing.
https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
rockman on Fri, 6th May 2016 10:22 am
Practical – Good idea: let the folks who run the US postal service take over oil/NG development. I personally would love to have a good where my salary wasn’t determined by my success. LOL.
And just to continue this silly chat: what exactly do you mean by “nationalize?” Do you take away the assets of ExxonMobil without paying a fair price to the MILLIONS of citizens (including many union workers) that own the company? Or do you mean the govt spending a bazillion $ of tax payer money to buy the company?
So what are the details of your plan and how will it make life better for our citizens? LOL
PracticalMaina on Fri, 6th May 2016 10:26 am
Go get a job at Chesapeake then. You want to know what the national government and oil companies already have in common? Overpaying the higher ups for doing a shitty job.
No I mean a huge lawsuit against them for getting us into an unmanageable situation. Many of the Union workers would keep their jobs and then could class action sue whatever old money is left over from their apocalyptic lies.
PracticalMaina on Fri, 6th May 2016 10:27 am
This scenario is one where life continues to get worst for the masses, and a decision is made out of desperation, in other words, how this country has always worked.
PracticalMaina on Fri, 6th May 2016 10:29 am
Also the postal service has been making money lately, it is just an overburdened pension fund that has punished them. If they were a fossil fuel company they probably would have just told their retirees to pound sand, as we have seen many coal companies do lately.
Plantagenet on Fri, 6th May 2016 10:30 am
Would this be a good time for the 2015 Paris Accords to reduce our carbon emissions?
OH–thats right. The Paris Accords are a sham that will do nothing to reduce CO2 emissions.
Cheers!
Davy on Fri, 6th May 2016 10:31 am
The federal government will likely have to get involved with food and fuel at some point in some way, shape, and or form if it is in shortage. The way things are going we are heading for shortages so connect the dots.
PracticalMaina on Fri, 6th May 2016 10:37 am
The market will do something to reduce co2 emmisions, if things were on a level playing field. But instead you have executives at Exxon saying they wont invest in renewables because they wont throw money away, in other words more false information about the viability of a competing form of energy. All while spending millions to fund bad science. Criminal behavior IMHO.
PracticalMaina on Fri, 6th May 2016 10:38 am
All while we still give tax breaks. The fossil fuel industry will destroy our planet, within a generation, and our elected officials are concerned with their profit margins.
Plantagenet on Fri, 6th May 2016 11:11 am
Oil companies are still looking for oil in spite of the oil glut and current low oil prices because it can take 3-10 years to bring an oil field on-line. Oil companies don’t make their decisions based on current conditions but on their predictions of what the economy will be like 3-10 years from now.
Obviously the oil companies think the world will still be using oil in the future.
Cheers!
marmico on Fri, 6th May 2016 11:29 am
By successfully drilling 23 out of 25 wildcats. The Rockman began using a very common offshore geophysical technique that almost no company had employed onshore. Again, why? Because…you are full of shit and live in a trailer park downwind of an oil refinery. PCWD (Peak Chicken Wing Dynamics) my ass!.
Boat on Fri, 6th May 2016 11:31 am
Apple, google, microsoft, walmart along with hundreds of other large companies are investing in renewables. Over 1/2 of the states have a renewable target. The gov will give you $8,000 for an electric car. There are many other state and fed incentives for efficient water heaters, low water use toilets.
In the end any product must make a profit and becomee more cost effective to capture a large share of the market.
Davy on Fri, 6th May 2016 11:36 am
Markets, have no place with CO2 reductions because this is not profitable if done right. It must be done by an authoritarian system of a civilization in crisis and decline. Otherwise we are just in denial and playing a game with reality.
PracticalMaina on Fri, 6th May 2016 11:47 am
Davy you can sequester co2 and profit using your land and cattle. Small farms doing the same should be encouraged. I think the more unpredictable weather becomes, the more it makes sense to not participate in the conventional consumer economy. It makes more sense to tend some land in preparation of droughts, heat waves, forest fires, heavy rains ect. building resiliency into your own community. If only things could be restructured in a significant way to make the local economy more lucrative and the wall street globalism economy not a priority.
PracticalMaina on Fri, 6th May 2016 11:53 am
First almost 2 gigawatts of coal power was on the line in the area, now 2 nuclear plants may be getting shuttered, some utility upheaval is going on in Illinois
http://www.utilitydive.com/news/updated-exelon-says-2-nuke-plants-on-the-line-in-sweeping-new-illinois-ene/418730/
shortonoil on Fri, 6th May 2016 12:13 pm
“Oil companies are still looking for oil in spite of the oil glut and current low oil prices because it can take 3-10 years to bring an oil field on-line.”
To replace the oil that they are now extracting, @ $20/barrel, would cost $570 billion per year. Last year oil companies cut their capital expenditures by $300 billion. How are they finding that oil, with Divining Rods? Your comment makes no sense, and flies in the face of what is actually happening.
farmlad on Fri, 6th May 2016 12:17 pm
Pracical you are correct: managing grazing livestock can sequester a lot of carbon. Some of the roadblocks to having this happen on a large scale is that economic systems tend to reward the fastest extractor not long term wisdom.
rockman on Fri, 6th May 2016 12:19 pm
Practical – “Overpaying the higher ups for doing a shitty job.” So true…I’ve worked for more then a few who were overpaid incompetents or thieves.
Boat on Fri, 6th May 2016 12:27 pm
“Markets, have no place with CO2 reductions because this is not profitable if done right.”
Cars for example have cafe standards that save money. Tighter emissions standards cost more money. Combined they equal less co2. A win win.
Davy on Fri, 6th May 2016 2:38 pm
Look, my point is parties in Paris and climate business effort proposals will have little to no effect on reducing emissions. If society is truely serious about what “May” be effective then drastic action is needed. I say “May” because it may be too late anyway. That is the simple of it. Complicate the issue however you like but it does not change the math.
Dredd on Fri, 6th May 2016 3:48 pm
Me: Oil reservoirs in an enlightened world that does not want to commit suicide/ecocide…It isn’t marketable.”
———————————–
You: And yet this world has existed since the beginning of the petroleum age … Consuming more oil then ever before doesn’t seem to fit the concept of it not being “marketable”.
=====================
A hundred years may be a big deal to perfunctory cognition, however, the words of addiction freely flowing does not change the nature of the addiction.
Old political posters are not marketable merely because they have sentimental value even though the can be sold to fools.
Nor are they marketable merely because junk dealers make a killing.
Authoritarian type B cognition is a repeating pattern, but it is not marketable once it becomes effectively extinct.
A damaged mind lives on in a damaged state (Oilfluenza, Affluenza, and Disgorgement).
But fossils bring a price, a story, and a tale, post extinction, but they are still fossils.
Prick Oil News is about Oilfluenza, a dirty form of affluenza.
makati1 on Fri, 6th May 2016 7:25 pm
rockman, yes, government takeover/nationalization WILL happen eventually and your ‘shares’ will just be worthless paper as are all other financial tokens used today, except gold. If you think you can retire and live off of your pension, investments and savings, you are as deluded as many on here who are in deep denial of reality.
onlooker on Fri, 6th May 2016 7:35 pm
Mak, so true. It would be the only way for the US and its people to make do and survive. You are so right. The US is rapidly descending economically and this descent will not be pretty. However, I do not foresee starvation on a massive scale either happening that soon.
Kenz300 on Sat, 7th May 2016 10:33 am
Climate Change is real….. we will all be impacted by it……
Exxon’s Climate Change Cover-Up Is ‘Unparalleled Evil,’ Says Activist
http://www.huffingtonpost.com/entry/exxon-evil-bill-mckibben_561e7362e4b028dd7ea5f45f?utm_hp_ref=green&ir=Green§ion=green
Kenz300 on Mon, 9th May 2016 10:31 am
As Climate Change worsens there will be a backlash against fossil fuel companies……..
It is time to divest from fossil fuels and embrace the future with the power from the SUN…….
The world is moving to clean energy production with wind and solar and clean energy consumption with electric vehicles………
Think land lines vs cell phones……
The change will happen faster than most people think….