[ROCKMAN]

Dude,

You probably know this but perhaps some here don't: as per SEC regulations a public energy company's reserve values are set based upon the price of oil on 31 December of each year. Won't matter that oil hit $147 a few months ago. If oil is at $60 on 31 December then that sets the book value of all those US companies. And as Dude pointed out, that value correlates directly to borrowing power.

[AirlinePilot]

And borrowing power is prety hard to come by right now. If I was running a bank or lending institution, I'd be very leery of the smaller outifts on the margins asking me for money right now.

I'm sure the news IS going to get worse in this regard. It will only get better when we work through the current carnage. That may be a while.

[TheDude]

$this->bbcode_second_pass_quote('ROCKMAN', 'D')ude,

You probably know this but perhaps some here don't: as per SEC regulations a public energy company's reserve values are set based upon the price of oil on 31 December of each year. Won't matter that oil hit $147 a few months ago. If oil is at $60 on 31 December then that sets the book value of all those US companies. And as Dude pointed out, that value correlates directly to borrowing power.

[TonyPrep]

$this->bbcode_second_pass_quote('OilFinder2', 'G')lad to see you guys are finally realizing there's a glut of oil on the market and prices are crashing to the point that projects will be delayed.

[Twilight]

Lukoil, Rosneft and Gazprom forecasting declining production, slashing investment, paying off debt and asking for tax cuts.

Link 1

Link 2

In other stories there is some talk of joining OPEC in cutting production to support prices, some talk of carrying on as before, some talk of needing political direction. I don't see anything happening to existing online capacity, but they just do not have the money for investment. It is as much if not more a financing issue as an oil price issue. Next year's spending plans are being completely rewritten on a strategic level. Gazprom especially says reducing gearing is a new priority.

[TheDude]

This isn't directly a consequence of tightening credit, but I think I'll use this thread as a warehouse for stories about projects possibly being delayed or canceled owing to low crude prices as well.

WSJblogs: Crunch Time: Cheaper Oil Drives Saudi Aramco to Review Oil Projects

$this->bbcode_second_pass_quote('', ' ')November 5, 2008, 10:49 am
Crunch Time: Cheaper Oil Drives Saudi Aramco to Review Oil Projects
Posted by Keith Johnson

The looming oil supply crunch caused by cheaper oil might not come just on the margins—it could come in the center of the oil patch, as well.
SaudiOilWorker_art_200v_20081105091339.jpg
Take five (AP)

Saudi Aramco is “reviewing” parts of its $129 billion upstream push to boost oil production in light of the “current economic circumstances,” the Financial Times reports. Those circumstances include oil prices which have fallen from $147 to $65 in a few months, and a global economic slowdown which is destroying demand for crude oil. From the FT:

“People would like to go to and re-evaluate, and maybe some projects were evaluated at $80 or $100 a barrel – now we are talking about $65 a barrel,” [Khaled al Buraik, an executive director at Saudi Aramco] said. “I think the whole oil industry, the new expansions, oil and gas, it will be re-evaluated - it will be reassessed based on the current economic circumstances.” Mr Buraik said Aramco’s short-term projects were on track and the kingdom would reach its target of increasing production capacity to 12.5m barrels a day by the end of next year. But the development of the Manifa field, which was intended to add 900,000 barrels per day of capacity by 2011, was under review, he said.
“We are meeting our 12m barrels [next year], and we are meeting our spare production capacity of 1.5m to 2m barrels per day; beyond that everything is depending on the market and the decline rates,” said another senior Aramco official. “All the portfolio that will be coming later on is being looked at. Any company would be doing that at this stage.”

[ROCKMAN]

Dude,

It seems to be across the board. I just learned of a very large US independent which has cut its 2009 budget from way over $1 billion to less then $700 million. And not because of the oil price drop (they have little oil revenue). It was due to the cost and limited availability of credit. They will essentially pay out of cash flow. Not really a bad plan these days. And we should start seeing a significant drop in rigs rates in the unconventional NG plays in the next 4 months. Over all, it makes this company and similar players look more appealing in my opinion: not taking on more debt, reduced drillings costs, good prospect inventory, more quickly decreasing NG reserves as a result of drilling slow down.

With a little luck this reduction will match any demand destruction to some degree and allow some stability in pricing. Just color me "pleased".

[TheDude]

$this->bbcode_second_pass_quote('ROCKMAN', 'D')ude,

It seems to be across the board. I just learned of a very large US independent which has cut its 2009 budget from way over $1 billion to less then $700 million. And not because of the oil price drop (they have little oil revenue). It was due to the cost and limited availability of credit. They will essentially pay out of cash flow. Not really a bad plan these days. And we should start seeing a significant drop in rigs rates in the unconventional NG plays in the next 4 months. Over all, it makes this company and similar players look more appealing in my opinion: not taking on more debt, reduced drillings costs, good prospect inventory, more quickly decreasing NG reserves as a result of drilling slow down.

With a little luck this reduction will match any demand destruction to some degree and allow some stability in pricing. Just color me "pleased".

[TheDude]

FACTBOX-Financial crisis hits global oil investment

$this->bbcode_second_pass_quote('', 'N')ov 5 (Reuters) - The growing financial crisis and plunging energy prices have forced oil companies to scale back spending and delay projects, with expensive ventures in the Canadian oil sands hardest hit.

[ROCKMAN]

Dude,

Layoffs don't seem to be on order here. In fact, they were having trouble keeping the offices full. I suspect they might cut back on hiring efforts though. If we have soft winter NG prices and that holds thru the summer this position might change. Not too worried: there will always be lots of overseas well site geologist gigs. Not many "office geologists" can handle the rotation and the "exotic" locales.

As far as jackup demand I saw an interesting headline the other day. Didn't catch the details but the point was that the Persian Gulf was going to quickly become THE offshore drilling arena soon. Mostly shallow water there. Don't know the numbers but there may be quit a few smaller (but still big by US standards) fields out there.

Another interesting side note: they held an offshore Brazil conference down in Rio the other week. They had 34,000 show up for what was essentially a meet and greet affair. USA and China both had members of the diplomatic core there. Just like sharks with blood in the water.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'A')s far as jackup demand I saw an interesting headline the other day. Didn't catch the details but the point was that the Persian Gulf was going to quickly become THE offshore drilling arena soon. Mostly shallow water there. Don't know the numbers but there may be quit a few smaller (but still big by US standards) fields out there.

[ROCKMAN]

Interesting update doc. Thanks. Maybe someone was just trying to hype their deal. BTW...I was lined up to do some of the geosteering on the Maersk project but my current gig popped up first. Woud have like to have made it there though: 4 mile long laterals would have been interesting.

[TheDude]

34k! That's wild.

Guess who's visiting Obama next week? King Abdullah. How the Iran cookie will crumble is a big question.

Another piece from Reuters: Oil service firms warn of dangers of lower prices

$this->bbcode_second_pass_quote('', ' ')By Luke Pachymuthu

DUBAI, Nov 6 (Reuters) - Oil and gas service contractors have warned big oil firms that using the financial crisis to force down contract prices could risk future project delays and cause supply bottlenecks.

The global economic slowdown and the falling price of oil and other commodities have turned the tide against the service industry that ramped up charges as oil rallied to its July peak of $147. Since then, the price has fallen over $80 to around $61.

Top oil exporter Saudi Arabia and Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) said this week they were looking for ways to use tight credit conditions to lock in lower costs to match the slide in the cost or raw materials.

Some service contractors struggling with liquidity problems could move to offer lowball bids on contracts in exchange for cash payments upfront, Jean-Marc Aubry, chief operating office in the Middle East and South West Asia for French service provider Technip SA (TECF.PA: Quote, Profile, Research, Stock Buzz), said at an energy conference this week in Abu Dhabi.

"There are many contractors and sub-contractors suffering from cash flow problems... and these companies will look at lowering their prices significantly for quick cash," Aubry said.

"If clients opt for these low contract bids, what happens six or eight months down the road if these companies go bust? You could end up with potential project delays because clients will have to start the whole process again."

[copious.abundance]

--> LNK <--
$this->bbcode_second_pass_quote('', '[')b]Economic Turmoil Unlikely to Affect Saudia Aramco's Mega-Projects
by Stephen L. Brundage Saudi Aramco
Thursday, November 06, 2008

The current global economic downturn will not impede Saudi Aramco mega-projects, Khalid G. Al-Buainain told a group of 300 energy industry professionals.

In fact, a slowdown may actually have benefits from the standpoint of easing tight construction supplies.

Al-Buainain, Saudi Aramco's senior vice president of Refining, Marketing and International, made the remarks Oct. 26 during a meeting of the Society of Petroleum Engineers.

"When it comes to our new crude-oil increments and gas expansion projects, the impact of the present economic turmoil will be minimal," he said. "By and large, our upstream projects are self-financing, or 'corporate financed,' meaning that we are not reliant on the banks or credit institutions to finance our expansion programs. However, the need to bring in additional volumes of oil in a contracting market will be examined carefully."

Saudi Aramco, he said, will continue to support the Kingdom's position as the world's swing producer. "Of course, we already possess substantial spare crude-oil production capabilities, in keeping with the Kingdom's longstanding commitment to maintain 1.5 to 2 million barrels per day in spare capacity," he said.

[...]

[Maddog78]

I haven't heard of any layoffs yet in my circles but have heard of hiring freezes and drilling plans slowing down.
Ex. one company drilling for NG had planned to pick up 5 rigs over the winter and will only pick up 2 now.

It will be interesting if layoffs do happen cause I believe it will be doubly hard to get people back in the fold when the inevitable uptick comes.

[TheDude]

Petrobras Goes From First to Worst Among 10 Biggest Oil Stocks

$this->bbcode_second_pass_quote('', 'B')y Joe Carroll

Nov. 10 (Bloomberg) -- Petroleo Brasileiro SA, the investor darling among the world's largest oil companies in the first half of the year, has become the biggest loser.

Petrobras, as Brazil's state-controlled oil producer is known, is the worst performer among the top 10 publicly traded oil companies since May. The stock dropped 53 percent on concern falling energy prices and the global credit crisis will block or delay efforts to tap the biggest offshore discovery in the Americas in three decades. Earnings growth will slow from 80 percent in the third quarter to 6.2 percent next year, according to the averages of analyst estimates compiled by Bloomberg.

``The decline in oil prices and the current financial crises will at some level impact Petrobras,'' said Gianna Bern, president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois. ``Deepwater exploration is a very high-cost, high-risk proposition, and $60 or $70 oil will prompt them to re-evaluate their highest-priority developments.''

[ROCKMAN]

Dude,

I haven't been able to confirm it but I heard Petrobras just had to borrow money to pay its dividends. Sounds like they need a sugar daddy right now.

Sorry, no change in plans for the Tupi pilot project or the rest of Petrobras' sub-salt fields.

--> LINK <--
$this->bbcode_second_pass_quote('', 'T')he global financial crisis, however, will have little impact on development of the company's subsalt reserves because they're long-term investments, Barbassa added.

"The crisis will alter nothing, and the pilot plan will be maintained for the end of 2010," he said.

[TheDude]

$this->bbcode_second_pass_quote('OilFinder2', 'S')orry, no change in plans for the Tupi pilot project or the rest of Petrobras' sub-salt fields.

--> LINK <--
$this->bbcode_second_pass_quote('', 'T')he global financial crisis, however, will have little impact on development of the company's subsalt reserves because they're long-term investments, Barbassa added.

"The crisis will alter nothing, and the pilot plan will be maintained for the end of 2010," he said.

$this->bbcode_second_pass_quote('TheDude', 'T')hey say they're committed to Tupi, nothing about the status of projects further down the line; perhaps they'll enter a production sharing agreement like China is cutting with the FSU.