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Page added on October 18, 2015
Oil companies “virtually abandoning” exploration
The hunt for new stores of oil and gas has been dramatically curtailed amid a global crude slump, with exploration budgets at the largest oil companies expected to tumble 50 percent next year from their peak levels in 2013, according to a new analysis.
Investment banking firm Tudor, Pickering, Holt & Co., which tracked exploration capital spending at integrated oil companies and major exploration and production companies, forecast that spending on exploration will fall to about $25 billion next year.
Oil companies are spending less in part because service costs have tumbled alongside oil prices, allowing explorers to spend less money to search for new reservoirs. But a vast majority of those spending cuts are related to a pullback in activity, according to the Tudor, Pickering, Holt & Co. analysis released to investors Monday.
“Many (exploration and production) companies are virtually abandoning exploration altogether, especially in the U.S.,” the analysts wrote.
Recent auctions for oil and gas leases have attracted little interest, the analysts said. In July, Mexico sold leases for two of its 14 offshore blocks on auction, a poor showing as the country attempts to end a 76-year state monopoly on its oil and gas reserves by opening up exploration to private firms. A lease sale for the western Gulf of Mexico in April similarly failed to drum up much interest, attracting only five companies who purchased just 33 leases, the smallest such sale for the region in more than 30 years. Bid value had fallen 80 percent in a single year, Tudor, Pickering, Holt & Co. analysts wrote.
As oil companies pull back from exploration, they are poised to produce less oil in the coming years. Big Oil companies closely tracked by the investment banking firm are finding less than half the 8 billion barrels of oil equivalent per day that they currently produce, a trend that should help reduce the tidal wave of crude flooding the market and keeping prices depressed.
“There is not enough existing discovered resource and U.S. shale to sustainably grow production over the next decade, and it takes five years in the best case, and generally closer to 10 years to take a major conventional discovery into production,” the analysts wrote.
Domestic benchmark oil, which has been trading below $50 a barrel since July, was down 81 cents to $48.82 Monday morning on the New York Mercantile Exchange.
The sharp reduction in exploration spending spells good news for exploration and production companies with good portfolios, including those with acreage in the oil-rich Permian Basin but seismic companies, drillers and other service providers that rely on exploration work should brace for more tough times, the analysts wrote.
26 Comments on "Oil companies “virtually abandoning” exploration"
Boat on Sun, 18th Oct 2015 6:53 am
So who has a numbers that shows development cost of oil in Iraq and Iran. That seems to be where most of the new oil will come from. And who can fund them at <$50 oil?
makati1 on Sun, 18th Oct 2015 7:16 am
Seems the smart money is leaving the casinos.
Kenz300 on Sun, 18th Oct 2015 8:00 am
Electric vehicles, bicycles and mass transit are the future…….
How The Decline Of Cars Is Changing Cities For The Better
http://www.huffingtonpost.com/entry/car-decline-cities_561f34dae4b0c5a1ce620dd9
Kenz300 on Sun, 18th Oct 2015 8:01 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
———–
Oil and Gas Companies Make Statement in Support of U.N. Climate Goals – The New York Times
http://www.nytimes.com/2015/10/17/business/energy-environment/oil-companies-climate-change-un.html?&moduleDetail=section-news-2&action=click&contentCollection=International%20Business®ion=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article
BobInget on Sun, 18th Oct 2015 10:02 am
I seriously doubt oil companies are abandoning exploration because oil is somehow ‘going out of style’.
1) Human Shareholders whose lifespans are infinitely shorter then oil companies paying dividends. That ‘E’ in E&P stands for exploration. Companies Hobson’s Choice:
Slow exploration or stop paying dividends.
2) The “Shale Revolution” was The Game Changer. Instant gratification being the name of the game. With 3/D, sweet spots became evident. But as you know, shale requires constant drilling due to premature ejaculation. Low oil prices left shale drillers, frackers, producers frustrated.
3) Because below cost crude and gas has devastated so many mid-sized oilers it’s cheaper to find oil on Bay or Wall street.
4) Off shore, deep water rigs cost a million dollars a day while accident free.
Getting a new drug approved can cost a billion dollars and take five years. Getting a
major oil field up and running takes longer and cost ten times as much.
5) Where to look? Geopolitical is often more important then geological considerations.
In hindsight we can see why the ME is of such great interest to every new US and UK administration.
6) Investors, look at beat down US and Canadian conventional O&G companies.
Yes boys and girl, Peakoil snuck up on us disguised as a ‘glut’.
“Trick or Treat”
Boat on Sun, 18th Oct 2015 10:19 am
Bob,
I never understood the problem with short life cycles when it comes to fracking. All they are doing is draining an area more efficiently in a shorter time period with net increased production. So capital is returned quicker and be can be reinvested quicker.
What I would like to see is the increased net production compared to the net cost per well on average. That would tell if the average well absorbs the extra costs of fracking.
BobInget on Sun, 18th Oct 2015 10:34 am
Snagged from another energy board;
Huge supply crunch around the corner
People always talk about shale and tight oil as the high decline stuff…but offshore was high decline long before.
Now not 70% in year 1, but many offshore platforms normally exhibit decline rates of 10% from peak production annually. Some really expensive ultra deeps like many of the Magic Brazilian SubSalts have decline rates of 20% built in, because the enormous cost of keeping the operations online require extremely high production rates.
Now I know that US shale producers have increased their productivity in the past 6 months by anywhere between 100 and 200%. Some have increased by 300% and a few by 1000% since last Tuesday. A few are now even experimenting with Telepathic drilling that involves no bits turning at all.
But interestingly I have not heard of any offshore operations reporting 7500% increases in efficiency. It very much seems like those operators were as smart in December 2014 as they are now. Must be slloooowww learners. Maybe the Salt Water is just too soothing.
I don’t know if the net decline will be 1.5 million…but its going to be a material number since very few offshore projects have been able to be sanctioned since Jan of 2015. Over 2016 you’ll probably get the last of the big ones sanctioned before “the new times” (I would think there will be a minimum of 250k of new offshore from Iran already underway from Sinopec before the Fall of Oil, but many previous 2016 targets like Canada’s Hebron Field and Rockhopper’s Sea lion in the Falklands have been pushed at least into 2017) . But I think the problem will have been worsened on a net basis because a lot of marginal projects (think small north sea platforms for example) that in a 100$ environment would have been squeezed to near zero and last another 3 to 5 years are going to get shutdown next year. They are running those platforms into the ground right now. Your hint was the Norwegians mentioning a significant drop in maintenance Yoy.
2015 was the “hope it stops raining before the Dam gives out” year.
The Dam gave out in mid summer when Brent went back below 50.
BobInget on Sun, 18th Oct 2015 10:46 am
Here’s another really good set from that same board. (worth a read)
Decliners
Brazil’s oil output decline 6% in September + illusion of production resilience
Petróleo Brasileiro SA, Brazil’s state-controlled oil company, produced a total 2.72 million barrels a day of oil and natural gas in September, down from 2.88 million barrels the prior month.
In a statement on Friday, the company commonly known as Petrobras said average output in its Brazilian fields fell 6 percent to 2.53 million barrels last month, while overseas production fell 1.5 percent to 188,000 barrels a day.
http://uk.reuters.com/article/2015/10/16/uk-petrobras-output-idUKKCN0SA2R920151016
—————–
Brazilian production has been holding up this year due the ramp ups of several FSPOs in 2014, and the launch of the 150K FSPO (Cidade de Itaguaí in the Lula field) in Q3, however as the industry cuts on infill drilling declines are taking hold. Last month I posted the following on Brazil’s steep decline rate:
Looking at the well profiles normalized to their first month, and grouped by size class, shows that the wells reach peak capacity by the second month of production. Wells with maximum productivity of between 5 thousand and 10 thousand b/d, sustain their peak output for about one month and then production drops to 60 per cent of output by the 12th month of production. Wells producing more than 10 thousand b/d at maximum output have a more gentle profile, with production falling to 70 per cent of peak output by the 12th month.
Full report below:
/uploads/69286/files/braziloxfordenergy.pdf
—————–
Brazil is not the only country that was giving an illusion of production resilience, when we study the foundation for production strength around the world, we notice that most of the strength is due to temporary factors:
1. Aggressive infill drilling: Russia is a perfect example of that (http://www.investorvillage.com/smbd.asp?mb=4288&mn=203645&pt=msg&mid=15354802), however Russian production will most likely slow down next year as taxes increase, rampant inflation raises service costs, sanctions impedes long lead-high tech projects and USD funding concerns pile up. Vietnam is another example of a country that undertook heavy infill drilling this year that lead to a rise in production in 2015, but yet it is set to experience an 8.8% decline in production in 2016. Infill drilling can only last so much before the need to develop new fields come in, however most fields new fields are uneconomic to develop at current prices:
Boat on Sun, 18th Oct 2015 11:00 am
The world has dropped around 1,000 drilling rigs in the last year while the US dropped 690. The glut is dissipating one drilling rig at a time.
onlooker on Sun, 18th Oct 2015 11:43 am
Wow, alot of technical info Bob. The takeaway is a supply crunch around the corner. That cannot be good for consumers. So now we will have both consumers and producers trying to recover from their respective oil shocks. Nothing but volatility from this point forward.
apneaman on Sun, 18th Oct 2015 11:46 am
Goldilocks and the three prices of oil
http://resourceinsights.blogspot.ca/2015/10/goldilocks-and-three-prices-of-oil.html
shortonoil on Sun, 18th Oct 2015 12:05 pm
When petroleum can no longer supply enough energy per unit to the end consumer to power an amount of economic activity that is equal to its cost of production it will no longer be produced. The results of the Etp Model indicate that we have reached that point; the cost of producing the average barrel can no longer be justified by its full life cycle production cost. Producers can no longer afford to replace the reserves that they are extracting.
What has been keeping production elevated at this point in the cycle has been a massive growth in debt. A growth to a level that is not likely to be sustainable for long:
http://www.zerohedge.com/news/2015-09-23/welcome-newer-normal-your-complete-guide-world-which-fed-no-longer-control
The surge in world inventories, along with falling rig counts is a reflection of that debt expansion. From an energy perspective (the Etp Model) that production growth has come at a very high cost; cannibalization of existing infrastructure, and energy taken from other sectors of the economy.
With less energy available to the general economy, demand will decline, and inventories will continue to grow. Price will continue down, and the industry will find itself in an ever more untenable position. In a very few years all exploration will be abandoned in this zero sum game. Producers will continue to produce until lifting costs can no longer be covered, and wells will be left to die!
http://www.thehillsgroup.org/
onlooker on Sun, 18th Oct 2015 12:12 pm
thanks for the link AP, yes I first encountered this see-saw scenario from perusing the book of Richard Heinberg, The Party is Over. Since then I have read the same from other sources how a supply and demand dance with price interlocked will define the downward slope of the oil age. All makes much common sense actually.
MrNoItAll on Sun, 18th Oct 2015 1:57 pm
“What has been keeping production elevated at this point in the cycle has been a massive growth in debt. A growth to a level that is not likely to be sustainable for long.”
The World Hits Its Credit Limit, And The Debt Market Is Starting To Realize That
http://www.zerohedge.com/news/2015-10-18/world-hits-its-credit-limit-are-debt-market-starting-realize
It was always obvious to many if not most of us. The “shale revolution” and in fact almost all of the unconventional oil production this last decade (or so) was enabled ONLY by massive — and unpayable — debt. And we all knew that the party would end sooner or later. The fact that TPTB have managed to stretch it out this far has been amazing to me, and if you ask me, a real accomplishment that could only have been achieved by close coordination and central control between international financial powers and the governments that serve them.
We’ve all laughed, and sighed, and scratched our heads in wonderment at how thick skulled and totally clueless the posters like Nony (and his collection of sock puppets), and Boat (who probably is a Nony sock puppet), and Plant and all the rest of the dunderheads could be so moronic as to buy into the official “barrel count” and the rest of the pro-fracking propaganda.
Reality is getting ready to bite, hard. The clueless collection of nitwits and ignoramuses who have put their faith in the “illusion of all is well” will feel that bite the hardest. Pity them, and all the rest like them, for they truly know not what they have been suckered into believing. It hurts a lot when illusions come crashing down, and a lot of people are in for a world of pain, no doubt more pain than many if not most will be able to handle.
GregT on Sun, 18th Oct 2015 2:19 pm
“All makes much common sense actually.”
Common sense is a dichotomy, which is very apparent listening to many of the posters on this board.
GregT on Sun, 18th Oct 2015 2:33 pm
“The clueless collection of nitwits and ignoramuses who have put their faith in the “illusion of all is well” will feel that bite the hardest. Pity them, and all the rest like them, for they truly know not what they have been suckered into believing.”
What makes things even more ironic, is the nitwits that have been routinely posting this nonsense here, had the opportunity to make plans for themselves. They should have known better than the masses that really have no clue about what is occurring, or why. The latter I feel sorry for, the former deserve what’s coming to them.
shortonoil on Sun, 18th Oct 2015 5:23 pm
The Etp Model says that oil production should have started down no later than 2012; the energy half way point. It has been a little bit of a mystery to us why it hasn’t. Well, its not really a mystery:
http://www.zerohedge.com/news/2015-10-18/global-debt-and-gdp-spot-odd-one-out
Just stack up enough debt to bring the house down>
Your house, car, business, savings, 401K, and everything that you will ever earn has now been put up as collateral.
Your lucky day will be when you get back a nickel on a dollar.
rockman on Sun, 18th Oct 2015 8:16 pm
Just another picky point: “…and it takes five years in the best case, and generally closer to 10 years to take a major conventional discovery into production”. I’ll be kind and assume he accidentally dropped the words “Deep Water” conventional discoveries. Onshore discoveries start producing in a few months…sometime less. The last Rockman oil discovery (a 400 bopd well) took 5 weeks to go online after the Rockman pulled to log confirming its presence. Even in a major conventional discoveries with many development wells to drill you might be talking 1 to 2 years at most.
Mark on Mon, 19th Oct 2015 2:14 am
Offshore is history – for a while. Frackers hang on – Saudi’s lone export -oil – will eventually kill their economy – especially as they try to fight an unending Middle East war – world economies are improving – oil demand will increase again – dominance of electric cars and solar is still 20 years or more away
makati1 on Mon, 19th Oct 2015 2:47 am
Dream on Mark…
Davy on Mon, 19th Oct 2015 7:12 am
This dove tails with Shorts comment on debt:
The World Hits Its Credit Limit, And The Debt Market Is Starting To Realize That
http://www.zerohedge.com/news/2015-10-18/world-hits-its-credit-limit-are-debt-market-starting-realize
Needless to say this was bad news for everyone hoping that just a little more QE is all that is needed to return to all time S&P500 highs. And while this concern has faded somewhat in the past few weeks as the most violent short squeeze in history has lifted the market almost back to record highs even as Q3 earnings season is turning out just as bad, if not worse, as most had predicted, nothing has fundamentally changed and the fears over EM reserve drawdown will shortly re-emerge, once the punditry reads between the latest Chinese money creation and capital outflow lines.
The second, and far greater problem, facing the world is precisely what the Fed and its central bank peers have been fighting all along: too much global debt accumulating an ever faster pace, while global growth is stagnant and in fact declining. King’s take: “there has been plenty of credit, just not much growth.”
Our take: we have – long ago – crossed the Rubicon where incremental debt results in incremental growth, and are currently in an unprecedented place where economic textbooks no longer work, and where incremental debt leads to a drop in global growth. Much more than ZIRP, NIRP, QE, or Helicopter money, this is the true singularity, because absent wholesale debt destruction – either through default or hyperinflation – the world is doomed to, first, a recession and then a depression the likes of which have never been seen. By buying assets and by keeping the VIX suppressed (for a phenomenal read on this topic we recommend Artemis Capital’s “Volatility and the Allegory of the Prisoner’s Dilemma”), central banks are only delaying the inevitable.
Davy on Mon, 19th Oct 2015 7:19 am
More dove tail on shorts comment:
“The Bankers Have Gone Through This Before. They Know How It Ends, And It’s Not Pretty”
http://www.zerohedge.com/news/2015-10-18/bankers-have-gone-through-they-know-how-it-ends-and-it%E2%80%99s-not-pretty
There is another explanation, one suggested by Bloomberg, namely that banks have allowed US shale producers, most of whom would otherwise already be insolvent, to kick the can by selling $61.5 billion in equity and debt in 2015, generating more than $700 million in fees. Half the money was raised to repay loans or restructure debt, the data show. This follows nearly half a trillion in loan originations and stock and bond underwriting in 2014.
shortonoil on Mon, 19th Oct 2015 7:27 am
“Offshore is history – for a while. Frackers hang on – Saudi’s lone export -oil – will eventually kill their economy”
Oil companies have sold $62 billion in stock, and bonds since the first of the year. That money has not gone into E&D; over $200 billion in projects have been canceled. That money is being used to pay dividends, and executive bonuses. It is not being used to produce oil. The money was borrowed against company assets that were created when oil was $100/ barrel; it is now $46. When the Central Bank shell game of let’s hide the pea comes to an end, those assets will be re-evaluated. Mark to Myth will be exposed for what it is; a hallucination produced from an over supply of the CBs free money drug.
$100 oil is never coming back; frackers are not hanging on, they are dying by the day. Offshore once again is as much of a delusion as the buyers of that $62 billion are having. It is an hallucination that they will ever get their money back.
The oil age will end when producers can no longer make money producing oil. At $46 they can’t make money. The only thing they can do now is borrow it. At $25 to $30 they won’t even be able to that! As long as the free money machine keeps turning, it will be guaranteed to go there. All the CBs have are their presses; when they stop the CBs will be no more. The insolvent banking system will implode into a Mark to Myth black hole.
OFT on Mon, 19th Oct 2015 8:57 am
Rockman, that 5 weeks to market is impressive, and probably only achievable in the well-oiled and tested US market. For me, in third world markets it can take 5 weeks to reschedule a meeting, 5 months to conclude any new terms and 5 years to deliver the project. And I am talking fairly simple technical studies, where most if not all of the work is done in the office!
I note that Eni is still trying to bring their Norwegian Goliat field on line about 17 years after discovery. (OK – probably not a fair comparison but some of these projects do drag on a bit…!)
rockman on Mon, 19th Oct 2015 11:38 am
OFT – Exactly. That’s why I felt they were thinking offshore while not specifying it. And international develop is all the more lengthy as you point out. And you think 5 weeks is impressive: I’ll skip the details but once I had a new NG discovery going into a sales line within 48 hours of logging it. In fact I had the well drilling within 48 hours of generating the prospect. A very, very unique set of circumstances that are very, very rare.
BC on Mon, 19th Oct 2015 11:46 am
short and all, below are data to imply that resumption of QEternity will occur sooner rather than later:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2brV
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2bs2
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2boQ
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=29Kh
And the banks are getting the jump on the Fed’s next phase of QEternity:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2bsA
We’re in a recession, gents, but we don’t yet collectively know it, as was the case in 2008 and 2001.