Wednesday, November 30, 2016

OPEC Agrees To Cut - Bloomberg -- November 30, 2016

Story posted at 7:42 a.m. Central Time: Bloomberg. Data points:
  • first cut in eight years
  • OPEC will reduce production by 1.2 million bopd
  • to 32.5 million bopd
  • oil jumped 7.6% to $49.90 / bbl in London at 1:23 p.m. local time
WTI futures in NY: $48.54 (up 7.32%).

Cramer: it looks like Saudi Arabia takes the cut; Iran, Iraq don't do anything; Russia even agrees to a cut; US drillers are winners. 

Getting Ahead Of Our Headlights

Hey folks, before we go any further, take a look (again) at the two graphics at this post. I may be missing something. A reader has pointed out something very, very interesting. The reader has street cred with more than a decade working in Saudi Arabia. The reader suggests that the Saudis may be doing the same thing that is being done in the Bakken: drilling DUCs. Saudi could be drilling wells but not bringing them into production. "A few hundred shut-in wells is a lot better than money in the bank for surviving the next ten (10) years or so." Saudi might be significantly increasing productive capacity because they anticipate:
  • increasing financial difficulties; and/or
  • possibly some significant "social unrest"
I would add two more possibilities:
  • major disruption in mideast oil shipping 
  • major mismatch in supply / demand if Libya, Nigeria, Iran, Iraq, others falter 
The "interesting graph" at this post could change significantly if any oil suppliers falter. 
Schlumberger Rigs

I haven't had a chance to really take a look at Schlumberger's new rigs. Some data points:
  • last year Schlumberger announced: "Drilling System of the Future"
  • a departure from the past where oil service companies would stay out of contract drilling services
  • SLB specifically acquired T&T Engineering, a Houston-based rig engineering company, to help develp the new rig's design
  • SLB rigs will be manufactured by a joint venture that SLB has created with BAUER Maschinen GmbH
  • Cameron's drilling rig portfolio: the new rig will receive top-drives, pipe handling modules, and blow-out preventers
  • five engineering prototypes of the new system would be ready for field testing in US and Ecuador before year-end 2016
  • first prototypes manufactured in US
  • complete version of the rig is expected in 2017
It would be incorrect to think of the "rig of the future" as an attempt by Schlumberger to capture a share of the highly competitive and commoditized North American land drilling market. It is an attempt to capture a share of the entire oil services market by moving from selling a Schlumberger downhole tool or a Schlumberger reservoir characterization service to selling a Schlumberger well, and extrapolating a Schlumberger full field development. In many ways, the "rig of the future" is a logical extension of the company's integrated project management philosophy and should be viewed in that context.
Debate: is SLB concentrated on international markets, rather US unconventional markets? It sure looks like that. But....
While the leading North American independent drilling contractors, such as Helmerich & Payne and Patterson-UTI , have achieved tremendous success in designing and continuously improving highly efficient drilling rigs specifically tailored for shale drilling, their advantage versus Schlumberger may not be long-lived. There is certainly a risk that Schlumberger's integrated technology approach will make a difference in producing "smarter" wells at a lower overall cost.
Bottom line: it looks like Schlumberger is trying to to "integrate" the entire drilling operation rather than contract out the pieces. 

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