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Page added on August 9, 2015
Oil companies need to resurrect stalled projects
Are we in an oil bust worse than the famous crash of 1986? The investment bank Morgan Stanley thinks so.
Oil companies have scrambled to cut costs and shore up their financial positions, and the industry has adopted the mantra that prices will be “lower for longer”. But with no consensus about how much lower for how much longer, executives have to steer a difficult course between riding out the storm in the hope of an upturn, and panicked overreaction.
Analysts polled by Reuters suggested Brent crude, now below $50 per barrel, would average $60.60 per barrel this year and $69 next, while the International Energy Agency foresees a recovery to $73 by 2020. But after oil prices had modestly recovered from January’s lows, the renewed plunge last month burnt several hedge funds.
Bearish factors abound. The continuing growth in Iraqi production, historically high Opec output led by the Saudis, the prospect of a return of Iranian crude, and future growth in Mexico as its industry opens up, collide with a tepid Chinese economy and a weak outlook for most commodities.
But Morgan Stanley’s comparison with 1986, although technically accurate, seems misleading. Back then, prices had already been dropping for five straight years before they plummeted. Opec spare capacity was 13 million barrels per day – 15 per cent of global demand – which took a generation to work off. Surging non-Opec output from the North Sea, Mexico and Alaska met consumption in steep decline owing to the increased use of other fuels.
Compare the current situation, when Opec spare capacity is only 2 million bpd or so, virtually all in Saudi Arabia, global demand is anaemic but growing, and non-Opec growth has been led entirely by North American shale projects, now beginning to show the effect of a year of declines in drilling. The fall in oil prices has been sharper than 1986 but was not preceded by a steady decline from a peak. And even at $50 per barrel, oil still seems valuable compared to 1998 when, adjusted for inflation, it was below $19 per barrel.
Oil companies have already cancelled $180 billion of spending on 46 planned megaprojects, particularly in high-cost areas in deep water and Canada’s oil sands. The abandonment of ageing North Sea fields, and the deferral of exploration in new areas will weigh on future production.
New debt and equity financing for US shale companies, abundant earlier this year, now seems to be drying up. They are considering asset sales, as are some of the super majors, including BP and Shell. But if everyone is a seller, who will be a buyer?
Even at $50 per barrel, prices are perfectly adequate for many projects to go ahead, if the industry can get some control over its costs. It has so far been more sensible than in previous busts, managing to retain skilled technical staff despite layoffs, reducing supply chain expenditure, improving technology, particularly in shale drilling, and beginning to reshuffle portfolios towards lower-cost fields, as with Shell’s purchase of BG, and wider industry excitement about Iran.
Governments and labour unions have to play their part. In countries from Canada to Norway to Australia, taxes, regulations, environmentalist obstructions and pay rates have swollen to absurd levels. One oil executive quoted by Reuters reportedly maintained his company would never build anything in Australia again unless labour laws were reformed.
Although prices should increase somewhat from today’s levels, no one – rightly – is betting on a return to $100 per barrel oil. Severe though this slump is, well-run companies should come through it stronger. But for the sake of future demand, the industry needs to start thinking how to resurrect, and finance, some of its $180bn of lost projects.
28 Comments on "Oil companies need to resurrect stalled projects"
Plantagenet on Sun, 9th Aug 2015 10:32 pm
Its turned out to be much easier for tight shale oil projects to drill a few less wells during this oil glut then it is for the oil major to turn on or off their giant multi-billion dollar projects.
Nony on Sun, 9th Aug 2015 11:03 pm
Governments are definitely hurting things with infrastructure hurdles. Bakken oil is several dollars disadvantaged to Eagle Shale because of pipeline lack (and there is plenty of $$ to invest in the lines…they just can’t get approvals). Add onto that the WTI-Brent differential of several dollars which comes from the export restrictions.
apneaman on Sun, 9th Aug 2015 11:17 pm
Oh sweet Jesus for the love of CO2 won’t someone please stop those evil governments from hindering the helpless frackers.———————————————————————-
“According to a new report from Oil Change International, the world’s 20 largest economies are undermining their own calls to fight climate change. The report finds that G20 countries provided $88 billion in subsidies last year to help the fossil fuel industry find new oil, gas, and coal reserves to mine.”
http://www.newrepublic.com/article/120239/us-subsidies-fossil-fuel-exploration-double-under-obamas-watch
apneaman on Sun, 9th Aug 2015 11:19 pm
Nony, you should start a charity –
The Make A Fracking Wish Foundation.
Do it for the children for heavens sake!
Nony on Sun, 9th Aug 2015 11:33 pm
Damn dude. You actually said something light for once.
P.s. I went to a make a wish ball once in Chi-town. Silliest, most extreme charity event ever. But my gf wanted to go and we were all dressed up and one of her friends had bought a table. Of course this was the same girl who raised three thousand to pay for her going to El Salvador to build houses for humanity. (Everyone I knew thought it was like paying for a vacation…and why can’t the workers in ES build houses? Just pay the vendors instead of sending yuppie chicks to do it.) She was actually pretty cool though. Those stories show her worse than she was.
Truth Has A Liberal Bias on Mon, 10th Aug 2015 1:19 am
I call BS. Nony had a girlfriend lol naw dude if you had a gf you wouldn’t be on here trolling day in and day out. You clearly have no life going on.
Davy on Mon, 10th Aug 2015 7:33 am
Truth, Hi, Doomer Davy the Dude doomer here. Hey, we all have our assholes we battle. The Makster is mine. I am curious why you find the NOo so disagreeable? I find him disagreeable but valuable. The guy is brilliant but troubled. He is exceptionally smart on a narrow range of subjects. He is especially knowledgeable of the oil, gas and financial markets. He appears to be a trader or analyst. He gives this away by his cheerleading for the oil and gas industry. He is a smart guy on many topics but only in a shallow way. IOW Econ 101 and corn porn does not explain life completely as he and other econo-corns like to believe. The NOo is even funny, friendly, and witty. I find him to be a gracious adversary often. When he is drinking he can be a pain. Overall the NOo is a valuable part of our board. We need diversity and participation for an effective message.
Anyway I do not want to get mixed up into battles by defending the NOo because he is a big boy and it is not my business. As you know I have a special and consuming distaste for the Makster. Makster is a mean narcissistic resentful old man full of hate and war lust. He has an extreme agenda of hatred for anything American. He promotes Asia and bashes the US and the west as the perfect example of a propagandist on par with the North Korean “Great One”. In fact the Makster thinks he is the “Great One”of Makati. The NOo just defends oil, gas and the happy face of corn porn. Stick around Truth you have given valuable contributions here.
Nony on Mon, 10th Aug 2015 7:43 am
I love you, man.
https://www.youtube.com/watch?v=ZGQyv-43334
Davy on Mon, 10th Aug 2015 8:03 am
Article “Are we in an oil bust worse than the famous crash of 1986? The investment bank Morgan Stanley thinks so.”
Davy says “Yes, this is the beginning of the end game of a demand destruction driven supply destroying descent plain and simple. It is be volatile and variable but the trend will be down along with the collapsing global economy”.
Article said “prices will be “lower for longer”
Davy says, at least this MSM cornucopian financial tits got the first part right. I understand they fail the second part because these folks are short-term-ist and perma-status-quo-ers. Made up words I know but I can’t find anything else to explain these failures of policy and position.
Article said “Opec spare capacity is only 2 million bpd or so, virtually all in Saudi Arabia”
Davy says “Who says Saudi Arabia has that much spare capacity? Saudi Arabia? Well we know what that means!
Article says “Governments and labour unions have to play their part. In countries from Canada to Norway to Australia, taxes, regulations, environmentalist obstructions and pay rates have swollen to absurd levels.”
Davy says “Global governments have been responsible for the Ponzi we are in. They created the financial repression and monetary easing that lead to the extreme search for yields in commodities especially oil. China created the largest mal-investment in the history of man. China destroyed their country in the final blow out of BAU. The US played it part with our own homegrown 1%’er blow out of extreme wealth destruction for private gain at the expense of the public. We have seen wealth transfer in the US unprecedented in our history. We have also seen our own mal-investment.”
Article says “Severe though this slump is, well-run companies should come through it stronger.”
Davy says “Well, we get a corn to admit to part of the reality of our demand destruction supply destroying descent. We will see well-run companies survive because they did not make rash and extreme market decisions in what turned out to be a gold rush of speculation and market exploitation. These well-run companies are the lucky ones and the smart ones. They will be the ones that learn how to cannibalize and salvage what will be the end game for the oil industry. Oil will likely be around a long time but not as we know it today.
joe on Mon, 10th Aug 2015 9:08 am
Bear market in oil should increase demand. But we are not at the very beginning of globalisation like in 1986, we are at a mature stage.
Demand won’t spike like it did, because who is going to generate that demand? Will China ship it’s industry to Africa and adopt a consumption/services economy?
Demand is low not because of high oil price which have been price inelastic, demand is low because of an end to globalisation. Which is what TPP is all about. Keeping the myth of eternal growth, forever, going, lest we lose faith in the god of Capitalism.
rockman on Mon, 10th Aug 2015 2:29 pm
The bear market in oil {CAN} increase demand. But that’s only one factors. Consider that oil went from $31/bbl in 1996 to $17/bbl (In. Adj.) in 1998. It then took 5 years to stabilize at $35/bbl before it began its climb to $100/bbl in 2008.
But from 1996 to 1998 global oil consumption INCREASED. And it held that rate of increase through 2008 when prices peaked. But during 2009 when the world was paying half the price it was in 2008 it was consuming LESS oil then it did in 2008.
There is a relationship between oil prices and consumption. But it’s obviously not linear and, more important, there’s a very slow response time.
BobInget on Mon, 10th Aug 2015 2:32 pm
One oil trading guru once told me “they are out to fuck us all” When all talking heads get on TV and internet warning of $30 oil. This is a major buy signal.
Let’s examine this ‘warning letter’ from “The National’ (right wing Canadian mouth-piece)
1) “Bearish factors abound. The continuing growth in Iraqi production, historically high Opec output led by the Saudis, the prospect of a return of Iranian crude, and future growth in Mexico as its industry opens up, collide with a tepid Chinese economy and a weak outlook for most commodities”.
a) Iraqi production is down year over year month over month. Iraq is one huge blood bath.
b) The Saudis can’t keep up record production for fear of permanent well damage. KSA is buying time with planted articles such as the one featured here. Construction is being rushed to build an 80 KM CO/2 pipe-line to bring life back to aging fields. There is No God. Certainly no ‘Oil God’. People steeped in superstition tend to believe in supernatural happenings.
No amount of ‘magic thinking’ can keep Saudi
wells pumping at current rates w/o damage.
c)Mexico is now and will be forever a net oil Importer. True, we import heavy Mexican crude. We refine it and re export diesel, gasoline, and natural gas, from US wells.
Once again, Mexico a Net oil Importer.
d) China’s light truck and auto sales are up double digits year over year. What’s more USED cars are now selling like crazy.
China’s oil imports are up 12.5% year over year.
India imports much of its oil directly from China.
But still,it’s possible to parse out India’s oil consumption, not entirely drawn from China’s.
Why? Because unlike China, India has yet to find much commercial oil, domestically.
Article points to $50 oil, saying it’s possible
form some oil companies to make a go.
We here know, not a single oil producing nation
can come close to meeting budget requirements at $50. It’s been a year of falling oil prices. Unless you, like Saudis believe in magic, $30, $40, $50 and so on are simply impossible tags for crude oil.
How many times do we need to revisit the Saudi/Iranian/Russian three way? These people are playing hard ball. If your nation’s entire source of income depended on a single item,
you would as well.
Wealthy Saudi families are shorting crude oil with US and European brokers. When those
Saudi ‘patriots’ decide keeping oil cheap is disadvantageous to their wealth, they will cover.
These folks are stealing from the national oil company, If and When they are exposed,
they will become headless.
Not mentioned by “The National” is a terrible,
heat ‘wave’ that is stationed over the Mideast.
We are talking temps over 50C as common.
The only escape from such heat is energy intensive air-conditioning. With water and electric power in short supply Iraqi citizens are getting crazier and crazier in frustration.
Worldwide demand for power, liquid fuels has increased, not diminished, as implied.
Finally: There is No OPEC Spare Capacity.
No one wants to admit both Saudi Arabia and Iraq are at war. It’s a fact. War is terrible hard on oil supplies. Yemen and Syria and Sudan and Afghanistan and Mali and Nigeria are all
suffering national disasters but it’s Saudi Arabia and Iraq that had that elusive ‘spare capacity’.
War fighting alone ate that so called glut when few were paying attention.
marmico on Mon, 10th Aug 2015 2:51 pm
Consider that oil went from $31/bbl in 1996 to $17/bbl (In. Adj.) in 1998.
But from 1996 to 1998 global oil consumption INCREASED
The price declined, the quantity demanded increased. You are as dumb as a door knob.
rockman on Mon, 10th Aug 2015 3:36 pm
“The price declined, the quantity demanded increased. You are as dumb as a door knob.” You post the link to the actual DATA that shows oil consumption increasesd in 2009 above the 2008 production as a result of lower oil prices and then I’ll post the link of the actual DATA that proves you are a liar or, at a minimum, ignorant.
Go ahead, punk, make my day! LOL.
alokin on Mon, 10th Aug 2015 5:47 pm
I really liked reading the comments here. Rockman, Bob and some others are still very interesting to read, but there are those like marmico and a few others which draw the whole site down.
Boat on Mon, 10th Aug 2015 6:19 pm
alokin,
Mostly people don’t like diversity of opinion. They want to hang out with those who think just like them. Group think led many to believe the earth was flat. Peak oil may mean crash, mayhem, billions of deaths. Or a transition to climate change, or a transition to a less bloody future. To early to tell as far as I am concerned. But energy is a great topic and we have colorful posters. What’s not to like.
rattus on Mon, 10th Aug 2015 7:30 pm
Well trolls are to be expected and can be quite entertaining.
While I’m not one of those who think we should let them starve, it’s important not to overfeed them otherwise they get fat and lazy and not very entertaining.
Just saying
Nony on Mon, 10th Aug 2015 7:55 pm
Rockman, you really are a lightweight. You make a comment about the 90s. Marmie replies to it and then you want to talk about a different time period. The 90s (the period YOU selected) is best explained as a demand response to increased supply (a movement along the demand curve in response to a supply shift).
The event that you are introducing NOW (2009) is a classic example of demand curve shift and therefore a movement along the supply curve.
Learn to differentiate demand shifts and supply shifts. Learn to differentiate changes in the curve (shifts) versus movemement along the curve.
These are basic concepts. Just like porosity and permeability.
READ this. Just shut up. and READ.
Ah fuck it. Just watch.
https://www.youtube.com/watch?v=fItk9WcYvhI
Now…don’t mouth off. SHUT UP and learn something. Old man.
Makati1 on Mon, 10th Aug 2015 10:22 pm
In today’s economic climate, who is going to invest billions in a pipeline, or new series of wells, if the whole economy may crash or, at least, the price of their product will be half of today’s in the year that their investment is able to move/produce oil? It might make sense in the World Island where it is just providing a new distribution system to current consumers, over land. But building a pipeline or adding a new oil field in a country already consuming less and less just isn’t profitable.
After all, there is no “slap down some cash and start pumping oil tomorrow” store. Not like buying a new car off the sales lot. And with the threat of the Fed increasing interest by even a fraction of a percent, who is going to bet that their consumer clients will have the cash to consume their new oil at a profitable price? PROFITABLE being the key word. Debt cannot keep increasing forever.
The world is broken. The road is all down hill from here. Adjust.
Kenz300 on Tue, 11th Aug 2015 7:19 am
Maybe FOSSIL fuels are no longer a good investment and it is time to diversify into alternative energy sources. There might be time to save the planet if they do.
Wind and solar investments are growing around the world. Every auto maker is now or will be soon producing an electric or hybrid vehicle. Bicycles are growing in popularity around the world and mass transit is making a come back in many cities.
Listen Up: Utilities Agree That Fossil Fuels Can’t Compete Against Renewables – Renewable Energy World
http://www.renewableenergyworld.com/articles/2015/08/utilities-agree-that-fossil-fuels-can-t-compete-against-renewables.html
rockman on Tue, 11th Aug 2015 1:56 pm
Nony – “Rockman, you really are a lightweight. You make a comment about the 90s.” My statement still stands true based upon the FACTS regardless of which time frame you chose. Same challenge to you: post a link with DATA proving me wrong. Otherwise you’ll end up just another empty shirt like marm. And we’re still waiting for the marm response…aren’t you also curious?
Say what ever you want but everyone is still waiting to see the link to the FACTS. So much verbiage…so few supporting links. LOL.
Nony on Tue, 11th Aug 2015 10:25 pm
I have posted data plenty of times and you were a punk about it. Like when you fucked up the Marcellus annual for monthly. Like when you fucked up Texas RRC corrections. Like when Rockdoc cited 5 different papers on matrix flow in shales and you blew him off.
You are a blowhard and a lightweight.
marmico on Wed, 12th Aug 2015 4:35 am
Otherwise you’ll end up just another empty shirt like marm
You are an effing retard, mudlogger.
Davy on Wed, 12th Aug 2015 5:19 am
Wow, The Rock just slap screwed both the NOo and the Marm and got them to reply with a puppy dog growl! I am grinning ear to ear.
marmico on Wed, 12th Aug 2015 5:35 am
The innumerate word salad prattle dickhead shows up. Who would have guessed. 🙂
Don’t you get it. Rockman is a star with innumerates like you who live in caves and paint drawings on the walls with crayons; crayons being the last vestiges of the petroleum age since I got a crapload of them, circa 2015.
Oh, did you read the latest EIA International data. Oil production has kissed 80 million barrels per day in March and April, 2015.
The cave and crayon artists like you predicted 2015 production of 65 million barrels a day a decade ago.
Davy on Wed, 12th Aug 2015 5:47 am
Dickhead calls out the board asshole.
The asshole said “Oh, did you read the latest EIA International data. Oil production has kissed 80 million barrels per day in March and April, 2015.”
Wow Marmi look where that has got the world. Are you sceered marmi? Your tiny wann-a-be investment must be shrinking. OUCCHH.
marmico on Wed, 12th Aug 2015 6:30 am
I don’t think that you should underestimate Crayola hexadecimal #8F47B3 on the dining room wall in your cave. That is an insult to post 1975 mastadons like Rockman. 🙂
Oh, regarding the inventory in my prior post, I’m prepared to trade my crapload of Crayola
crayons for 100 bushels of your wilted corn, Mr. Prepper Asshole.
Davy on Wed, 12th Aug 2015 8:22 am
Marmi, you turn me on when you talk dirty!