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Tuesday, December 23, 2014

The Sky Is Not Falling (Yet); Number Of Active Rigs Plummeted To 170, Now Back Up To 172 -- December 23, 2014

Active rigs:


12/23/201412/23/201312/23/201212/23/201112/23/2010
Active Rigs172189187197162

RBN Energy: Gulf of Mexico projects coming on line, after years of development, adding to the glut; some GOM projects are profitable at $37/bbl.
Crude oil production in the Gulf of Mexico is on the rebound, and headed into record territory as the fifth anniversary of the Macondo blowout approaches.
Several major deepwater projects--including Hess and Chevron’s Tubular Bells—are starting to produce oil after years of development, and others will follow in 2015 and 2016. The gains in GOM crude production are significant; daily output now stands at about 1.5 MMb/d, and it’s seen rising to 2 MMb/d within three years.
In today’s blog, “Tubular Bell—Gulf of Mexico Oil Gains Exorcise Macondo’s Ghosts,” we examine the resurgence in GOM oil production, and the reasons why recent investments in deepwater drilling may well pay off despite the oil price crash.
This may not be the ideal time to start crude oil production from a project that cost hundreds of millions—or even billions—of dollars to develop. After all, crude prices have been nose-diving in recent weeks, and Saudi Arabia appears determined to maintain its production levels no matter how low prices go. There already are signs that US shale oil producers are rethinking their 2015 drilling plans, and that certainly makes financial sense.   
Shale-play development is front-end loaded because production rates from most shale wells peak high and early. That means a well that starts producing in, say, January 2015 will be selling about half of its oil during the 2015 calendar year.
Oil wells in the Gulf of Mexico (GOM) are a different animal. Deepwater drilling may be much more expensive up-front, but production rates at GOM wells remain high and flat over a long period of time
For that reason, exploration and production (E&P) companies active in the GOM take a decidedly long-term view. They look at average oil prices over the next 20-30 years when making drill-or-don’t-drill decisions, not the next three to five.
So because deepwater projects in the Gulf are seen as very long-term investments, the oil price of the moment is not such a big factor in an E&P company’s decision on whether a major project is a “go”. Still, no one in the oil business fails to consider the break-even price for developing an oil resource. From what we’ve seen and heard, the break-even price for big GOM oil projects in the early stages of construction is somewhere around $70/Bbl—maybe as low as $65 or as high as $75, but in either case higher than current crude prices (WTI closed at $55.26/Bbl yesterday – December 22, 2014.) What that tells us is that E&Ps with identified and promising discoveries in the Gulf (but, as yet, no commitment to develop them) will be closely tracking oil prices and related events over the next few months.
What’s important to know, though, is that while the break-even oil price for major new GOM projects may be $70/Bbl, the break-even price for smaller “tie-back” projects that link new fields to existing offshore infrastructure (Shell’s Cardamom, with its link to Auger is an example) can be half that: $35 or in some cases even less. That suggests that Gulf oil projects, with their high output and long lives, will continue to attract capital-spending dollars, and that GOM oil production will continue to rebound.
Much more at the link.

For more on Peak Oil Theory, visit The Oil Drum. Oh, that's right. That blog called it quits some time ago.

10 comments:

  1. An interesting thing to think about: how many rigs does it take to keep even with declines. Per the EIA, we have about 77,000 bpd decline per month from old wells. So you need 77,000 bpd from new ones to compensate. Productivity per rig is about 550 bpd/rig. So that comes out to about 77/0.55=140. Figure a bit of help from high grading and from efficiency (for example less frack delays with less volume) and maybe it goes down a bit. But there's also the new hurdles of the conditioning order and the flaring regs. So maybe it evens out...and 140 is needed.

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    1. You are absolutely correct; I used to blog about this sort of stuff awhile back (with all the Red Queen talk), but haven't really talked about it lately, waiting to see where the "dust" settles.

      This is an incredible point in the history of the oil and gas industry if one thinks about it. I might talk about that sometime.... thank you for taking the time to write.

      But yes, to get back to your point, RBN Energy's post today really brings it home: deep-sea offshore, 10 - 20 year time frame when thinking about projects.

      US shale: 6 months to a year overall when planning projects.

      The Bakken? 30 days. That's about how long it takes to get a permit, and initial spud. And the payoff is within 6 months for the better wells, and even less for the "best" wells. Yes, this is quite a story.

      I'm disappointed that the KLJ study only went to $70-oil. They needed to consider $50-oil if that was going to be a meaningful study.

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    2. It seems like dropping below 140 is not so crazy. Already down to 170. Gotta figure there's a fair amount of contracts that are calendar year based. We will have another big drop in JAN. CLR is a good proxy for the Bakken. And they are going to 11 rigs instead of 19. Seems like something around 100 by June would not be surprising.

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  2. I didn't think the KLJ study was very interesting. I get a lot more content out of the USGS stuff. or even CLR presentations. THe KLJ thing looked some municipal "predict the roads budget" government funded crap.

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    1. Thank you, thank you, thank you. I thought I was missing something. I thought it was amateurish at best. Their conclusion: at current oil prices (back in the summer -- $100 oil), the Bakken was "sustainable for the next five years.

      It took all my will power not to write what I really thought of the study.

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    2. No. You judged right.

      I was going to give you some crap about being a coupon keeping old fart at the commissary though. I remember going in there to buy crap for the weekend party and feeling like an oddity for actually being a single fighting man in uniform rather than some retiree or dependent. ;)

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    3. One has to remember: CLR is generally not in the best spots in the Bakken from what I see (purely a "sense," not statistically analyzed -- I will leave that up to MIke Filloon and others), and CLR has other plays (like the SCOOP) to drill. Whiting has other plays. MRO has other plays. But a lot of the operators, like Oasis do not have anywhere else to go. I have another company in mind that I think will be most interesting to watch next year in the Bakken.

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    4. I think the oil business is actually pretty rational. If the acreage warrants drilling, it will get drilled. Doesn't matter if an O&P has alternate aacreage elsewhere or not. It's all about the calculation on what they do have. funding is always available via partners or even divestitures.

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    5. With regard to the comment about the commissary, see more here:

      http://themilliondollarway.blogspot.com/2014/12/non-energy-notes-from-all-over-december.html

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