[ROCKMAN]

To answer some of the practical questions first: Offshore exploration is always led by seismic acquisition. Seismic technology is much like IT – it evolves significantly over 5 year periods. Thus any new offshore areas would require a big catch up game seismically. Old data would give a head start but few would drill on it alone. But that won’t begin in earnest until the feds approval specific offshore areas for a future lease sale. That nominating process can take several years: companies nominate X number of blocks and the feds conduct environmental audits, etc. This nominating to lease sale process takes 3 to 4 years. By that time the companies would have lined up seismic crews: most crews or tied up on 2+ years at the moment so the nominating process would really loose to much time.

As far as drilling rigs go that won’t present a problem. Many of the shallow water rigs that would be utilized in the new areas moved out of the Gulf of Mexico years ago because of a lack of work. Overall, shallow water rigs are readily available around the world. The prospect generation process would take a year or two AFTER the seismic is shot. And, no, they don’t use explosives offshore anymore. They use air guns which are essentially like a balloon popping. Once the prospects are generated we go the lease sale. So, on a fast track, it would go something like this: 3 yrs (nomination/environmental) + 2 yrs (seismic acquisition) + 1 yr (prospect generation) + 1 year (lag time for rigs to arrive = 7 years. This being the fast track it might take 8 or 9 years for practical reasons.

As far as where first, I would hope they would do the w coast and Fl at the same time. Offshore Cal already has a drilling history so it would just be an extension. Given some infrastructure in place some early discoveries could be flowing to the tank in a couple of years. Fl might take an extra year or two. So, overall, we’re probably looking at the better part of 10 years before firs oil production. There are certain to be a few exceptions where companies might drill from existing platforms off Cal for some close by targets they’ve know about for years but couldn’t lease.

So, now all the folks that want to say “See…they’re wrong…it won’t have any effect o current oil prices!!!” Well…DAH! It seems like the vast majority of folks commenting on how slow oil might be produced from these areas are the only ones that mentions a fast positive result. I have yet to see one E&P expert say it would happen fast. Just ignore the CEO’s: they are cheer leaders. Also, it’s probably worth noting that, from a personal benefit stand point, about 96% of the oil patch would benefit from new areas NEVER BEING OPENED UP TO NEW DRILLING. I and my cohorts sell a commodity. Any effort by someone to add more of the commodity to the market diminishes our income potential. The vast majority of the oil patch will never benefit from drilling in those new areas. I can only speak for myself, but as a patriot and compassionate person, I would be glad to see any effort that might lessen the impact of PO on society regardless how small it might be. Opening new drilling areas up isn’t about changing the price of gasoline next summer. It may not even about having much of an effect on gasoline prices 10 years from now.

The other question: how much is out there? Some here already know my answer: we don’t know with any certainty how much or how little is out there. All the numbers thrown around…big or little….are absurd. We won’t even have an initial good estimate of that number for a good 20 years from when we start the process AT THE EARLIEST. Some here already know I do this for a living. As much as anyone thinks we could use more domestic production today, how much do you think the economy would benefit from that addition 15 years from now. We’ll never see independence from imported oil. Period. The economy will be dependent upon oil for at least the next 30 years. Period. Alts will be developed but will take that long before they have a significant impact. Period. Even the most pessimistic production increase numbers represent 10’s of billions of income to the feds from royalty/bonus payments. Period. And 100’s of billions of profits to US companies (which are collectively owned in majority by everyday Americans). Period. And many hundreds of billions in reduced trade imbalances. Period. The only downside is potential environmental damage. Can’t make any promises there but the drilling/production operations in the Gulf of Mexico have been proven to be one of the least polluting industries in the US. Don’t argue with me…look it up. The great oil spills in history has come from tinkering crude oil. Technically speaking, every tanker of crude we produce domestically reduces one tanker of imports thus reduce environment risk (granted it’s only a tiny reduction since we tanker (and will continue o tanker, huge amounts of oil into the US. But if anyone truly has environmental concerns as the top factor that’s certainly their right. But, to be intellectually honest, they would also have to support shutting down all drilling production operations in the Gulf of Mexico. Our beaches and sea food industry are no less important than that on either coast. And if you want to tie your environmental concerns to saving some oil for the grandkids that can be accomplish by the feds buying all the GOM production and saving it for the kiddies. That would cost the American people trillions of $’s and probably run gasoline up way over $10/gal in now time. But if these are your priorities I would support your right to lobby for them.

And if I sound a little too pissy I apologize: I was standing where I wasn’t supposed to be and got hit in the back by a piece of drilling equipment. So I’m a hurting SOB at the moment and am not feeling very patient.

[AlexdeLarge]

Great post Rockman!

If drilling on OCS was made a top national priority, akin to a war effort like we saw in WWII, how fast could we be drilling? (Assuming all of the bureaucratic red tape, leasing arguments, and environmental arguments were waived)

Under 5 years?????

[ROCKMAN]

Alex,

Maybe in 5 years but even without the red tape (some of which is actually important) it takes companies a while to refocus efforts and budgets. Both for the prospect generators and the seismic/drilling companies. If all in Congress and the White House cooperated then yes....maybe 4 or 5 years. But given the current state of politics I think the time frame I offered is questionable.

[AlexdeLarge]

Thanks Rockman!

Always good to hear from someone who is in the business, and not some politically biased pundit.

Frankly, I have more faith in the oil companies than our fools in government. The oil companies and their expertise are the only thing standing between us and the abyss...........but yet they are demonized and scapegoated by politicians.

It is a shame...................................

[livinn59801]

Oh god yes, those poor oil companies!

[ROCKMAN]

I would respond to livvin's sarcasm but my chauffer is waiting and he hates to let the helicopter idle too long. But what the hell...it's only fuel

NO...no need to feel sorry for the oil companies. They are inanimate objects and thus can't be viewed in that context. The owners of Big Oil are a different matter. These shareholders control the actions of these companies. That's why it always tickles me when folks call for punishing XOM et al for the price of oil. First, they have no control over the price. Secondly, because the majority owners of these companies are the average union worker and retiree. Thru their pension funds and retirement accounts they are the beneficiaries of higher oil prices. That's why the talk of a windfall profit tax is deceitful. No politician, Rep or Dem, is going to destroy 100's of billions of $'s f shareholder equity by interfering with the free market. If a WPT is passed into law it will almost certainly be done as it was the last time: it will be a consumer tax collected by the oil companies which will be passed on in higher prices just like before. Of course, the feds could put price controls into play to prevent this pass thru but then you better keep a pillow in your can so you can nap while waiting for the next tanker to reach the gas station.

I must go now...the caviar is starting to warm.

[doodlebug2]

Thanks Rockman, that answers soom of my questions.

[Gothor]

The only response I could muster to this post is: who cares? The whole scene reminds me of people tyring to run stems through a screen to get enough pot to roll a joint. It's all just stems and seeds. And BTW Caviar should be served warm...anyone of class knows that.

[ROCKMAN]

Gothor,

Thanks for the tip. I'm new to all these oil riches. BTW...about how many bottles of champagne does it take to fill a standard bathtub?

But I do get your point. Sometimes the debate can turn into an argument as to whether the boat will sink in 2 hours or 2 days. either way, we're gonna get wet.

[BigTex]

Rockman, what is the service life of a shallow water rig? A deepwater rig?

Even if we have rigs available today, will we have them in 5-7 years when the actual drilling might start?

What do you make of Simmons' argument that the oilfield services infrastructure overall is old and fragile and will require an enormous investment to bring it up to the level we will need in coming years to look for all the hard-to-find oil?

Do you work on shallow or deepwater rigs (assuming you work on either)?

Are you familiar with Dril-Quip? They are a Houston based provider of offshore drilling equipment. It's a company I follow and I wonder if you are familiar with their products.

What about exploration in West Texas? Is there anything out there that hasn't been explored? What kind of increases in production from that region would you expect based upon sustained higher prices? I grew up out there (Abilene), so I am pretty familiar with the area.

As for the issue of whether it makes sense to you personally to explore new areas in the U.S. and offshore, it seems like a person in the oil business would ideally want sustained high prices that trade in a predictable range ($100-$150 a barrel for example), since a predictable trading range will ideally prevent the economic damage that a price spike causes, as we saw in the early and late 1970s, early 1990s, and today. I think that exploring these areas in the U.S. is VERY unlikely to lower prices in any meaningful way today or 10 years from now, but it might prevent or mitigate ugly price spikes at some point and therefore facilitate less choppy economic growth and activity. What are your thoughts on this idea?

If we are currently at a world plateau in production (which I think we are, with decline to follow), bringing more production on line in the future is very unlikely to cause anything like we saw in the 1980s.

As to the majors, I think their future is not good. They've got declining production, they're getting kicked out of all the good spots, their production costs are rising, their refining margins are being squeezed, they've probably captured all of the economies of scale and other savings from mergers, and they're facing a lot of political risk in the future from taxes to environmental regulation, to whatever else you have to worry about when there is a bullseye on your back.

I love the oil services sector, but I don't like the majors at all going forward.

Feel free to comment as much as you like on any of these points.

I enjoy your perspective on things very much.

[ROCKMAN]

Wow Big T,

I’m humbled that anyone would think I had that many answers in me. If I run out of correct ones I guess I can just make some up.

Service life is about the same. Which is almost as long as the drill companies can justify the updates. Many of the rigs running today were built in the 70’s and 80’s. Just like a car you can keep it running indefinitely if you keep replacing everything (even motor and tranny). Lots of the big rigs had $100 million upgrades done in the last 15 years. But they’re building about generation 5 rigs now…much more efficient and safer and capable of deeper water drilling. They take about 3 to 4 years to build and run around $800 million.

Oil field service equipment is continually refurbished. Slapping steel together is easy as long as the money is there. Getting experienced hands is another matter. Lots of these services require 10+ years of hard experience to get the job done right. Seeing a lot more barely qualified folks working these days. And oil/gas isn’t really that hard to find as I’ve pointed out before….there’s just getting to be fewer and fewer places to look for it. I know the name Dril-Quip but that’s about all.

Mostly Deep Water these days. Shallow water drilling in the GOM has been dropping for years.

There’s no way to prove it but if the gov’t could guarantee a flat price at. Let’s say, $60/bbl or $8 an mcf of NG for the next 20 years all the oil companies would jump on it. Most of the CEO’s out there now have lived thru those high/low swings which put more companies out of business then there are probably operating today. The late 70’s price spike destroyed more than half the oil patch in the 80’s. That’s one reason the oil patch is starting to ramp up now…they remember those days. The refiners for sure would be happy beyond description.

[TheDude]

SF Gate

$this->bbcode_second_pass_quote('', '(')09-16) 19:44 PDT Washington - --

The House voted today to lift the federal moratorium that has blocked drilling along most of the U.S. coastline for three decades and give states a greater role in choosing whether to have oil rigs off their shores.

The energy bill, passed with the support of most Democrats, would let states decide whether to drill between 50 and 100 miles off their coasts while allowing the federal government to open areas beyond 100 miles. Republicans opposed the bill, calling it a sham because it would not give the states any financial rewards for drilling and would ban exploration within 50 miles of shore.

The bill "is nothing more than hoax on the American people and they will not buy it," said House Minority Leader John Boehner, R-Ohio.

The vote marked a tactical retreat by Democrats, who have fought each year since 1982 to renew the ban. But House Speaker Nancy Pelosi, fearing a backlash for her party in November with polls showing growing support for new drilling, agreed to lift the moratorium as part of a broader energy bill.

Pelosi hailed the 236-189 vote as a victory because the bill also included Democratic priorities such as stripping oil companies of $18 billion in tax breaks, renewing expiring tax credits for wind and solar, and requiring electric utilities to get 15 percent of their power from renewable sources by 2020.

"This is a major step foward in perpetuating mass delusion in the face of severe challenges, all the while spinning this as an achievement for our party's principles, which we willfully abandoned decades ago for lobbying funds essential to gaining reelection," Speaker Pelosi was rumored to have said. "With this bill we Democrats have proven we can kowtow to partisan interests and simultaneously make our pathetic actions seem acceptable to voters' interests." Speaker Pelosi then left for a meeting with CFREAFB, or Citizens for Renewable Energy and Faustian Bargains, a major political action committee.

[dinopello]

I don't have time to read the Bill, but some of the statements quoted are kind of strange. If it passes the Senate and gets signed with the provision that each state has to approve the drilling, it will be interesting to see which if any state actually does and then what if any drilling actually takes place.

[3aidlillahi]

$this->bbcode_second_pass_quote('dinopello', 'I') don't have time to read the Bill, but some of the statements quoted are kind of strange. If it passes the Senate and gets signed with the provision that each state has to approve the drilling, it will be interesting to see which if any state actually does and then what if any drilling actually takes place.

[BigTex]

Mr. Market in his current funk has seemingly not noticed that the market for oil services would be better under this bill.

Logic would suggest that drilling and exploration companies would be booming in response to this action. Instead, they've had one of the worst weeks in months.

[doodlebug2]

Thanks Dude.

This topic is the reason I joined this site, living on the VA coast.

I can deal with 50 miles offshore drilling, but inside that? This entire
thing seems like a political show. Tell me oil gurus, Are oil companies drilling contractors, supplyboat operators salivating over this or as Bix Tex said they show little interest?
Sometimes I wish I never dumped my Tidewater stock.
thanks

[TheDude]

Two companies consider drilling prospects off NS

$this->bbcode_second_pass_quote('', 'B')y JUDY MYRDEN Business Reporter
Thu. Oct 9 - 7:58 AM

After years of drilling inactivity, encouraging news for Nova Scotia’s offshore came at an industry conference in Halifax on Wednesday.

Two major companies announced they are looking for rigs to drill wells for oil and natural gas off the coast of Nova Scotia late next year.

"We’re in negotiations," said Ian Padden, project manager for Bass Enterprises Production Co., owned by the wealthy Bass brothers of Fort Worth, Texas.

He declined to say which company BEPCo. is negotiating with to drill for oil at its prospect about 200 kilometres southwest of Halifax.

He described the discussions as "pretty far down the road" and said he hopes the company will be able to drill in October or November 2009.

[ROCKMAN]

Timing is everything, eh Dude. With the credit crunch not as many companies will be that aggressive now. But not to important: it will be at least 2 or 3 years before any decisions will be made on laying down big bucks for seismic acquisition. And then another couple of years for leasing decisions. By that time hopefully the economy will be getting back on track. Just about time for increased consumption and PO to knock us on our collective asses again.

[BigTex]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')iming is everything, eh Dude. With the credit crunch not as many companies will be that aggressive now. But not to important: it will be at least 2 or 3 years before any decisions will be made on laying down big bucks for seismic acquisition. And then another couple of years for leasing decisions. By that time hopefully the economy will be getting back on track. Just about time for increased consumption and PO to knock us on our collective asses again.

[TheDude]

Canadian Superior sound pretty confident about this. I did a bunch of checking up for new articles on how the credit crunch is affecting E&P and thought this was one of the more optimistic sounding reports; also about the only thing happening offshore NA. IEA is casting doubts on everything, even Brazil.