Saturday, July 15, 2017

Older Fields Around The World Are Shutting Down Faster Than Usual Due To Low Oil Prices -- July 15, 2017

Updates

Later, 11:31 a.m. Central Time: see first comment for some fun YouTube links. More importantly note the comment about "creative destruction." I'm always negatively impressed that Bloomberg seems to dwell on the negative outcomes of certain actions rather than the positive outcomes. But in this case, I think Bloomberg has it exactly wrong, suggesting that shutting down fields could be "bad news" if shale production cannot make up for the cuts in production elsewhere. Folks were also concerned that shale could not ramp up quickly enough if need be. In fact, if the older oil fields are needed, I have no doubt the oil companies can get back in very, very quickly.

Original Post

This is an interesting story. It's a few days old; I had seen the headline but did not read the story ... until now.

It turns out that because of the current OPEC - US shale story, "older" oil fields around the globe are shutting down faster than the historical pace. From Bloomberg:
The tussle for supremacy between OPEC and U.S. shale drillers is killing off older oil fields at the fastest pace in almost a quarter century. That could hurt the industry once the current glut has faded.
The three-year price slump triggered by the battle for market share choked off funds for aging deposits elsewhere, accelerating their decline. Output at older fields from China to North America -- making up a third of world supply -- fell 5.7 percent last year, the most since 1992, according to Rystad Energy AS. It’ll drop about 6 percent in 2017 if oil stays at current prices, the consultant said.
Oil fell from above $100 a barrel in 2014 to as low as $26 in 2016 as the Organization of Petroleum Exporting Countries opened the taps in an effort to stem the surge in shale production. That set off the worst industry downturn in a generation, forcing cost-cutting companies to focus on higher-margin assets at the expense of older, costlier fields. While OPEC changed course last year and curbed output to boost prices, shale was the main beneficiary and resurgent U.S. output has kept crude below $50.
I do know of at least one small mom-and-pop crude oil producer based out of Ft Worth is in deep trouble for that very reason. Early on, the son of the founder was not concerned, having seen his father experience the boom and bust cycle of the oil industry. He said that this downturn in oil prices was temporary and that things would soon "get back to normal."

Temporary turned out to be longer than expected. 

6 comments:

  1. Bloomberg said: "That could hurt the industry once the current glut has faded."

    Or it could be the industry is going through a period of creative destruction.

    The latter seems to be the conclusion that ExxonMobil came to, maybe with a little prodding from the SEC, when in February it wrote off its high-cost Alberta sands reserves. These represented a whopping 14% of the company's total oil reserves.

    Marathon Oil came to a similar conclusion when in its 1Q2017 10-Q it took an impairment charge linked to its Canadian oil sands businesses. It reported a $4,907,000,000 "income loss from discontinued operations."
    http://www.reuters.com/article/us-usa-shale-kemp-idUSKBN19S1R0

    Many other companies are writing off their highest-cost stripper production, since it is no longer economical to produce with the current low prices. In their 1Q2017 10-Qs, CLR wrote off $51,372,000 in impairments against its properties and PXD $285,000,000.

    In the end, it will all depend on how much tiger there is in the shale oil tank.

    For those too young to remember, the "tiger in your tank" phrase harkens back to ESSO TV commercials many moons ago. Here's a sampling:

    https://www.youtube.com/watch?v=QNECn9r9eRo

    https://www.youtube.com/watch?v=uOLVmUZN-zU

    https://www.youtube.com/watch?v=wKrx7o-kOW0

    https://www.youtube.com/watch?v=pxjajNv68CM

    https://www.youtube.com/watch?v=qz4SZ3D_Vc4

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    1. Agree with you entirely, "creative destruction." It's interesting how journalists always seem to find the "negative" side of the story -- a lot of their articles start to read like blogs. LOL.

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  2. And remember how Obama's Fish & Wildlife Service shut down Gibson Guitar?

    --- The Great Gibson Guitar Raid: Months Later, Still No Charges Filed ---
    https://www.youtube.com/watch?v=V5IYGroW1nA

    --- The Gibson Raid: Much to Fret About ---
    http://www.nationalreview.com/article/278379/gibson-raid-much-fret-about-pat-nolan

    One can Google "Fish and Wildlife shuts down Gibson Guitar" for much more, including Obama's political motives that inspired the operation.

    Trump is doing what he can do to defund these business-killing bureaucracies like Fish and Wildlife Service (part of the Interior Department) and the EPA, but he isn't getting much help from congress:

    --- House Republicans Reject Trump's Bid to Slash EPA's Funding ---
    https://www.bloomberg.com/news/articles/2017-07-11/house-republicans-reject-trump-s-bid-to-slash-epa-s-funding

    "House Republicans rejected Donald Trump’s steep budgets cuts for the Environmental Protection Agency as members of the president’s party instead offered a trim in spending for the environmental regulator.

    The White House had proposed a record 31 percent cut to the agency’s roughly $8 billion budget, telling lawmakers it wanted to cut 3,200 jobs and shrink or eliminate a wide swath of programs....

    The $31.4 billion [House] bill also includes more modest reductions in spending for the Interior Department, which runs the national parks, protects endangered species and plays a primary role in permitting oil, gas and coal development on federal lands and waters."

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    1. Yes, I do remember the Gibson Guitar story. I truly believe Obama worked at every level to hurt the average American. He came across as a very, very angry man; biased against the American dream for some reason.

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  3. Oops!

    The comment on Gibson Guitar was meant to be posted on the "US Economy -- Making America Great Again -- July 15, 2017" thread.

    Sorry about that.

    ReplyDelete
    Replies
    1. Not a problem; didn't even notice. Anyone following the blog on a regular basis knows the "flow" of the blog, the general themes, so comments generally fit in almost anywhere.

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