[Graeme]

I know this was posted on front page but it needs to be here too.

Are Shales a Bubble?

$this->bbcode_second_pass_quote('', 'I')nterestingly, the past year has brought massive write downs in shale assets and a frenzy of asset sales. Some companies, such as Shell, admitted that their divestment of North American shale properties was to stem the financial hemorrhaging and to distance themselves from disappointing well results. Others, like Exxon Mobil, claim to still be true believers in spite of their losses.


Examining shales since the beginning of 2013, we saw mergers and acquisition activity fall to its lowest level in years with a decline of about 52%. This means that deals were drying up and the large banks were no longer generating exorbitant fees from shales. Then we saw large private equity money move away from the sector plunging over 90%. Companies which had been running operations for years on borrowed monies suddenly lost adequate access to easy capital. Hence the sale of assets such as those by Forest Oil as mentioned above and virtually all other operators. Very large write downs also ensued. At times, acreage monetizations appeared to be hitting fire sale levels.

During this time, big money was quietly moving elsewhere into investments with more potential than shales. The small money, however, was becoming ever more reckless.

[toolpush]

It appears Shell plans to start drilling in the Arctic again.
http://www.nytimes.com/2015/01/04/magaz ... ulluk.html
$this->bbcode_second_pass_quote('', 'L')ittle about the increasingly extreme hunt for energy had changed. Shell still needed oil. The Chukchi and Beaufort Seas had oil. Shell still had its leases, and in August, and as oil hovered around $100 a barrel, the company announced its intention to return to the Arctic. Its new exploration plan called for placing two rigs in the Chukchi, to maximize the exploration time between the ice’s retreat and its return. One rig was a replacement for the Kulluk: equally massive and also lacking propulsion, but not round. It would have to be towed. The other was the Noble Discoverer, which had been refurbished yet again

[Alaska_geo]

The NYT article about the Kulluk grounding is pretty good. Shell and it's contractor Edison Chouest Offshore (ECO) clearly underestimated the severity conditions of the Gulf of Alaska in the winter. Even though ECO is highly experienced in the Gulf of Mexico, Alaska is a very different world, which they clearly were not ready for. Even worse, Shell and ECO didn't listen to folks with more experience up here, who clearly told them that attempting this tow in winter was a very bad idea. Unfortunately, this is an all too common story in Alaska.

EDIT: One hopes that Shell and ECO have learned a thing or two for their future efforts.

[Alaska_geo]

As a follow up to the NYT article, anyone who is interested can find the USCG investigation of the Kulluk grounding at:
http://www.uscg.mil/hq/cg5/cg545/docs/documents/Kulluk.pdf

Also, at one point after the incident, Shell tried to claim that forecasts had predicted a 'favorable two week weather window' for the towing operation. Anyone at all familiar with winter conditions in the Gulf of Alaska knows that is BS. There is no such thing as a two week window of good weather in the Gulf of Alaska in winter. Cliff Mass, a well known Pacific NW weather guru discussed this point in his blog after the incident:
http://cliffmass.blogspot.com/2013/01/gulf-of-alaska-storms-versus-shell-oil.html

[GHung]

$this->bbcode_second_pass_quote('', 'P')latforms in the Brent field have produced 10pc of the region’s oil and gas since 1976.


A chapter in the history of oil production in the North Sea is about to end as Royal Dutch Shell seeks approval to decommission its platforms of the Brent field which have produced 10pc of the region’s oil and gas since 1976.

The Anglo-Dutch super major has submitted plans to the Government to remove the giant Brent Delta “topside” structure and starts a 30-day consultation on February 16 on its proposals for the challenging operation.

“It’s the start of a new chapter in North Sea history,” said Alistair Hope, Brent decommissioning project director for Shell. “It’s one of the first areas in the world to decommission on this scale.”

As North Sea fields begin to run dry over the next 25 years, it is estimated £40bn will have to be spent removing redundant platforms and pipelines as well as plugging spent oil wells.

Around 16bn barrels of oil is thought to be recoverable from the UK’s North Sea but production rates have declined as companies have been forced to drill deeper and invest more capital. ...

Keep reading: http://www.telegraph.co.uk/finance/news ... cades.html

[kublikhan]

$60 billion(£40b) to decommission? Ouch. Still, with nearly 60 billion barrels of north sea production(past and future), that's only about a dollar per barrel in decommissioning costs.

[toolpush]

At least Shell still owns these platforms, and has the money to de-commission. What concerns me is the oil companies that have sold their legacy platforms to smaller companies, that may not have the capital to de-commission, and will leave liabilities to the government or the rest of the industry to clean up!
I do realize that the oil companies are suppose to have held some money in reserve, just for this purpose, but only time will tell if those reserves are enough.
The nuclear industry is in the same position with money in reserve for de-commissioning their plants. Now some of them as asking to delay de-commissioning so the value of that reserve can grow to enough to cover those costs.
It is easy to see who is going to pick up that bill. I hope the same doesn't happen in the oil industry?

[basil_hayden]

They make great artificial reefs.

[kublikhan]

I was just doing the math to compare decommissioning costs with nuclear.
In 2006 65 US nuclear powerplants generated 782m MWh or an average of 12m MWh per plant per year
Assuming a 40 year lifespan that comes out to .48bn MWh over their liftime
$1bn decommissioning cost / .48 bn MWh = $2.08 per MWh

A barrel of oil contains around 1.7MWh of energy. That comes out to $0.63 per Mwh to decommission North Sea oil compared to $2.08 per MWh for US nuclear. Nuclear decommission estimates are all over the place. I used the $1 billion figure as that's what the local nuclear plant in Zion cost to decommission.

Nuclear decommission costs are more than triple North Sea costs on a per MWh basis.

[westexas]

Some simple math in regard to high operating cost producing areas, at an advanced stage of depletion. Assume that operating costs are half of wellhead revenue at a wellhead price of $100. If the wellhead price drops by half to $50, net cash flow drops by 100%, to zero.

[Peak_Yeast]

Why do they need to decommision these platforms? I mean - just remove the toxic waste, plug the hole and let the rest stand until it cant...

[dolanbaker]

$this->bbcode_second_pass_quote('Peak_Yeast', 'W')hy do they need to decommision these platforms? I mean - just remove the toxic waste, plug the hole and let the rest stand until it cant...

[Peak_Yeast]

Thanks dolan. I can understand that problem - but puncturing them cant be that expensive? Is it because cleaning them are very expensive/impossible when at sea? If they are floating shouldnt it be easy just to let them disappear to the bottom?

How much value do they represent in recycled materials?

Besides it sounds easier and cheaper just to make an enviromental disaster out of them - not that i condone that. If the pollution will have any comparison $/liter pollution with the GOM fines then it will be much cheaper?

[ROCKMAN]

Bad enough England's fossil fuels are declining requiring greater oil imports they've consistently lost refining capacity. Not only are product imports more expensive, those jobs and profit margins are lost to foreign refiners:

Reuters - Britain's net imports of petroleum products more than tripled last year after a new wave of refinery closures and capacity cuts left the country unable to meet its demand. The cuts have been driven by rising overseas competition that put refining margins under heavy pressure. They have left Britain increasingly dependent on fuel imports, raising concerns the country will be vulnerable to supply shocks, price spikes and bottlenecks at strained import terminals.

British net imports of petroleum products amounted to more than 7.5 million tonnes in 2014. That was up from about 2 million tonnes in 2013 - the first time Britain had been a net importer since 1984. But demand for petroleum products increased by less than 1 percent between 2013 and 2014. Latest figures from the UKPIA refining trade group showed Britain had a net deficit of 55 percent on jet fuel and nearly 50 percent on diesel - above the "high-risk" energy security threshold of 45 percent designated by the International Energy Agency. Filling stations are working with minimum forecourt stocks. If there is any kind of supply disruption they are in a worse place today than they have ever been. Britain, along with much of the rest of Europe, has steadily reduced its refining capacity.

Globally, the amount of diesel and jet fuel produced has grown substantially, with Russia and the Middle East becoming increasingly larger exporters of products. But some in Britain worry about the consequences of dependence. Andrew Gardner, commercial manager of the PetroIneos Grangemouth refinery in Scotland, told a parliamentary hearing in 2013 that relying on imports creates "resilience problems" that risk "a third-party nation at some point potentially dictating what price they are going to give the UK fuel at". Gardner told Reuters, via a spokesman, that his statement stands. "As indicated in 2013, as UK refinery capacity declines and imports slowly get harder to source, then the risk of UK supply disruptions will increase," Gardner said.

"There's certainly a perceived need to increase storage capacity and terminal capacity and there's a general sense that the overall jet fuel delivery network is in need of investment," said Robert Turner, a director at PWC. Few major import hubs have been added despite the loss of nearly half a million barrels per day in domestic refining over the last six years, with fuel blender Greenergy's North Tees import terminal refinery a notable exception. Existing terminals may not cope with the volume replacement. Existing terminals are at the limit.