Furlock Bones said:

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i was talking to a friend that is a project engineer for BP deep water. he said liability of being the operator is the single biggest reason for the death of deep water.

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For them, yes, for the rest, prices need to be in the upper $50's for a sustained period before jumping in with both feet.

Interesting take/read. I've touted India for awhile, while others have said BS on it.

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The sleeping dragon of demand awakes

An unexpected surge in demand is another possible catalyst that could send oil prices skyrocketing, especially if it comes at a time when supplies are already under pressure. Currently, the International Energy Agency expects that oil demand will grow by a healthy 1.3 million barrels per day this year, though that's a slower growth rate than in the past two years, because of weaker demand in Russia and India. However, it's not out of the question that oil demand growth could reaccelerate if global economic conditions improve. Two places to keep an eye on are India and China. While oil demand in India is expected to rise 7% to 8% this year, outpacing Chinese expansion for the third straight year, a reacceleration in China's economic growth rate and faster growth in India could drive its oil demand above expectations. That scenario could provide a significant boost to oil prices if it catches the market flat-footed.

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"In a $50 to $60 (oil price) world, We always felt like greenfield development in the Gulf in particular was fairly challenged," Walker said.

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So how far do rates of contractors and vendors have to fall to make this range profitable?

I'm surprised it's not there already - vessel rates are ridiculously low right now - and until there's more consolidation / administration they will stay low if not go even lower.

Offshore hasn't even come close to the trough yet, and the brain drain that's currently occurring will be extremely detrimental to future recovery.

Vernada said:

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"In a $50 to $60 (oil price) world, We always felt like greenfield development in the Gulf in particular was fairly challenged," Walker said.

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So how far do rates of contractors and vendors have to fall to make this range profitable?

I'm surprised it's not there already - vessel rates are ridiculously low right now - and until there's more consolidation / administration they will stay low if not go even lower.

Offshore hasn't even come close to the trough yet, and the brain drain that's currently occurring will be extremely detrimental to future recovery.

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AGREED...Offshore , especially deep water , is still on the wrong side of the curve and is still hemorrhaging talent. It is entirely understanding why no investor would want to sink billions in a deepwater project with the risk that some minor spill will trigger the typical idiotic backlash and a rouge federal government imposing monstrous fines and illegal bans....when you can sink those billions in West Texas and poke hundreds of holes with minimal risks. 20k technology is still in its infancy and does not have a track record yet. Why even bother at $50/bbl ?

You hit on a part of the story that is not getting much ink but will impact the energy industry for decades. Just like in the 80's we are losing a ton of talent thru early retirement and folks simply giving up and moving to new fields. What will really be the disaster , just like we saw in the 90's-00's, is the lack of hiring and building up the experienced workforce needed 15-20 years hence. It was killer in the 90's and early 2000's as the old vets from the 70's and 80's left , no one was brought on board for a decade, so we had very very few guys in place to step up. We lost an entire decade of hiring and paid for it dearly for another 20 years.
I'm so glad to be done with it all. Only a handful of old comrades left in the industry so its really no longer my problem...

Vernada said:

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Quote:

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"In a $50 to $60 (oil price) world, We always felt like greenfield development in the Gulf in particular was fairly challenged," Walker said.

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So how far do rates of contractors and vendors have to fall to make this range profitable?

I'm surprised it's not there already - vessel rates are ridiculously low right now - and until there's more consolidation / administration they will stay low if not go even lower.

Offshore hasn't even come close to the trough yet, and the brain drain that's currently occurring will be extremely detrimental to future recovery.

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Transocean and ENSCO are huge and can weather the storm. The smaller ones I think will really suffer. How do you stay in business with so few projects in the works and others finishing up? As far as rates falling, I think it depends on the operators. ENSCO is still making some money, albeit very little, but are staying busy. Any sustained up swing and they'll start raising their rates. CVN, Shell, BP etc. are experienced/seasoned in this area and are better equipped to handle this.

I came across this quote yesterday - very applicable to offshore world:

Quote:

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The world's worst business is one with high fixed costs, low marginal costs, and lots of competition. In that case the competitive forces will drive prices down to the low marginal costs and it will be impossible to recover fixed costs.

When the fixed costs are debt financed, bankruptcy often follows. That is precisely why the airlines have been bankrupt many times. The marginal cost of filling the otherwise empty seat is very low and competition at times drives prices to those very low marginal costs.

John Hempton, Bronte Capital

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emphasis added by me

Interesting take on the "global warming crew"....

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The Church of AGW Anthropogenic Global Warming must react quickly and aggressively to squelch doubts planted by pesky skeptics. Pesky skeptics like Gernot Patzel, PhD, an Austrian scientist whose scholarly credentials belie his contrarian views, which are angrily condemned by climate orthodoxy. He spreads doubt by going around voicing blasphemous thoughts.


"Over the last 10,000 years," he says, "it has been warmer than today 65 percent of the time."

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One other note on APC cancelling their Shenandoah development, from the drilling side it's been in jeopardy for a long time. Their original plan was to select a driller at the end of 2015. The problem was the bids they received were so high (understandably so and from Seadrill and Maersk, I think) that they went back to the drawing board. The functional result is that APC could delay committing serious capital to the project. They could keep funding studies and analysis, but the practical work required their vendors to finance the development of the equipment. Those vendors were willing, to an extent, but this is an excellent reminder that money is an excellent judge of seriousness. Most of that money that the vendors spent on development will not see any returns for years (a decade?) to come.

Not to play devil's advocate, but...

I recently got my hands on a McKinsey & Co. report about "Beyond the Supercycle: How Technology is Reshaping Resources".

A supercycle is a period of 6% or more of GDP going to a commodity. For this report, they looked at oil, iron ore, copper, nat gas and coal. There have been 2 supercycles: 1976 to 1983 and 2003 till 2014 (small dip for the global crash). Before the 1970's, there was about 2% of the GDP spent on those 5 items. Between the 2 supercycles, it rose to about 3%.

The first supercycle was OPEC and such. I'm sure everyone older than me remembers the oil crash after that.

The 2nd one was China becoming industrial instead of agarian. In the report (about 1/2 through it), unless you can find another China or group of countries to be LIKE China, there is a low chance of there being another supercycle with these commodities.



Their overall gist is that with adoption of technologies, there might not be a bit boon to oil/gas/coal/iron. Copper will remain strong as electricity isn't going anywhere. But for example: ride sharing.

By utilizing ride sharing, the car density can actually decrease. This will impact oil usage COUPLED with the fact that newer cars are more efficient. Ride sharing isn't rolling around in a 1973 Dodge Ram; they are going in a 201X "camry" (or similar), getting 3X MPG (not 12 MPG). The newer cars are also less reliant on iron (steel), so there is an overall decrease. Now plastics make up more of the weight, but the overall result is a lower demand for oil and iron (and nat gas or coal to process things).

Smaller changes like maximizing robotic movements (to reduce electrical consumption) or 'smart' metering of electricity reduce overall electrical demand (think NEST or occupancy sensors). Coupled with a big change in power production (moving from coal to nat gas / solar/wind) means less demand. This is all in step with India and others coming from 3rd/2nd world status to pseudo-1st world.

They have 2 scenarios: 'normal technology' adoption and 'full' adoption. Some of the full adoption ideas are autonomous trucking (they give examples of that in mines and getting 30% efficiency gains) on the road, self-driving cars, high electrical cars, 'cheap' energy storage, etc. In one of the "full" adoption scenarios with cars, electric/driverless cars would reduce the need for 4.5 MMBBL/day of oil. That's essentially half the gasoline we currently use. I would think if you did that to cars, trucks/heavier equipment would not be far behind.


Part of their reasoning for the lack of energy demand for any other 'large' country (or group of countries) is that energy is more efficient now. From 1980 to 2015, China's GDP increased 18-fold. But energy consumption was only 5-fold. Would India and other countries (Africa) use older technologies? Sure, but they won't be the old ones from 1950-1970's USA; they will be 1990-2010's USA (assuming the US keeps up the technological improvement pace).


They mention that "Peak Oil" might be around 2025. Not that we don't have anymore, just that we don't have the demand increase.

I think there will still be oil demand and obviously replacement drilling. But with fracking and the transition from carbon to electrical economy (battery storage, solar, etc.), the demand for HC fuels will take a beating. What's going to happen to those that are in the industry still (with 25+ years before retirement)?


That's what I wonder about.

~egon

So no mention of India?

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'cheap' energy storage

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i'd love to know what that means

Efficient batteries to store electricity

does such a tech exist to presuppose "full adoption"?

isn't practical, affordable, scalable battery tech the silver bullet?

Wood Group just let go 170 people in Houston.

I don't think it exists today, but Tesla has a 4.9MM SF facility in the Nevada desert working on making it happen.

Aggielandma12 said:

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Wood Group just let go 170 people in Houston.

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Is that reduction related to the acquisition of Foster Wheeler?

godspeed john glenn

Dr. Doctor said:

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Not to play devil's advocate, but...

I recently got my hands on a McKinsey & Co. report about "Beyond the Supercycle: How Technology is Reshaping Resources".

A supercycle is a period of 6% or more of GDP going to a commodity. For this report, they looked at oil, iron ore, copper, nat gas and coal. There have been 2 supercycles: 1976 to 1983 and 2003 till 2014 (small dip for the global crash). Before the 1970's, there was about 2% of the GDP spent on those 5 items. Between the 2 supercycles, it rose to about 3%.

The first supercycle was OPEC and such. I'm sure everyone older than me remembers the oil crash after that.

The 2nd one was China becoming industrial instead of agarian. In the report (about 1/2 through it), unless you can find another China or group of countries to be LIKE China, there is a low chance of there being another supercycle with these commodities.



Their overall gist is that with adoption of technologies, there might not be a bit boon to oil/gas/coal/iron. Copper will remain strong as electricity isn't going anywhere. But for example: ride sharing.

By utilizing ride sharing, the car density can actually decrease. This will impact oil usage COUPLED with the fact that newer cars are more efficient. Ride sharing isn't rolling around in a 1973 Dodge Ram; they are going in a 201X "camry" (or similar), getting 3X MPG (not 12 MPG). The newer cars are also less reliant on iron (steel), so there is an overall decrease. Now plastics make up more of the weight, but the overall result is a lower demand for oil and iron (and nat gas or coal to process things).

Smaller changes like maximizing robotic movements (to reduce electrical consumption) or 'smart' metering of electricity reduce overall electrical demand (think NEST or occupancy sensors). Coupled with a big change in power production (moving from coal to nat gas / solar/wind) means less demand. This is all in step with India and others coming from 3rd/2nd world status to pseudo-1st world.

They have 2 scenarios: 'normal technology' adoption and 'full' adoption. Some of the full adoption ideas are autonomous trucking (they give examples of that in mines and getting 30% efficiency gains) on the road, self-driving cars, high electrical cars, 'cheap' energy storage, etc. In one of the "full" adoption scenarios with cars, electric/driverless cars would reduce the need for 4.5 MMBBL/day of oil. That's essentially half the gasoline we currently use. I would think if you did that to cars, trucks/heavier equipment would not be far behind.


Part of their reasoning for the lack of energy demand for any other 'large' country (or group of countries) is that energy is more efficient now. From 1980 to 2015, China's GDP increased 18-fold. But energy consumption was only 5-fold. Would India and other countries (Africa) use older technologies? Sure, but they won't be the old ones from 1950-1970's USA; they will be 1990-2010's USA (assuming the US keeps up the technological improvement pace).


They mention that "Peak Oil" might be around 2025. Not that we don't have anymore, just that we don't have the demand increase.

I think there will still be oil demand and obviously replacement drilling. But with fracking and the transition from carbon to electrical economy (battery storage, solar, etc.), the demand for HC fuels will take a beating. What's going to happen to those that are in the industry still (with 25+ years before retirement)?


That's what I wonder about.

~egon

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Interesting. Any chance I could get my hands on that report? Sounds like an interesting read? Can you pm a Dropbox link or something. Purely for non commercial reasons (ir, my own personal I'm the subject matter).

Dr. Doctor said:

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Not to play devil's advocate, but...

I recently got my hands on a McKinsey & Co. report about "Beyond the Supercycle: How Technology is Reshaping Resources".

A supercycle is a period of 6% or more of GDP going to a commodity. For this report, they looked at oil, iron ore, copper, nat gas and coal. There have been 2 supercycles: 1976 to 1983 and 2003 till 2014 (small dip for the global crash). Before the 1970's, there was about 2% of the GDP spent on those 5 items. Between the 2 supercycles, it rose to about 3%.

The first supercycle was OPEC and such. I'm sure everyone older than me remembers the oil crash after that.

The 2nd one was China becoming industrial instead of agarian. In the report (about 1/2 through it), unless you can find another China or group of countries to be LIKE China, there is a low chance of there being another supercycle with these commodities.



Their overall gist is that with adoption of technologies, there might not be a bit boon to oil/gas/coal/iron. Copper will remain strong as electricity isn't going anywhere. But for example: ride sharing.

By utilizing ride sharing, the car density can actually decrease. This will impact oil usage COUPLED with the fact that newer cars are more efficient. Ride sharing isn't rolling around in a 1973 Dodge Ram; they are going in a 201X "camry" (or similar), getting 3X MPG (not 12 MPG). The newer cars are also less reliant on iron (steel), so there is an overall decrease. Now plastics make up more of the weight, but the overall result is a lower demand for oil and iron (and nat gas or coal to process things).

Smaller changes like maximizing robotic movements (to reduce electrical consumption) or 'smart' metering of electricity reduce overall electrical demand (think NEST or occupancy sensors). Coupled with a big change in power production (moving from coal to nat gas / solar/wind) means less demand. This is all in step with India and others coming from 3rd/2nd world status to pseudo-1st world.

They have 2 scenarios: 'normal technology' adoption and 'full' adoption. Some of the full adoption ideas are autonomous trucking (they give examples of that in mines and getting 30% efficiency gains) on the road, self-driving cars, high electrical cars, 'cheap' energy storage, etc. In one of the "full" adoption scenarios with cars, electric/driverless cars would reduce the need for 4.5 MMBBL/day of oil. That's essentially half the gasoline we currently use. I would think if you did that to cars, trucks/heavier equipment would not be far behind.


Part of their reasoning for the lack of energy demand for any other 'large' country (or group of countries) is that energy is more efficient now. From 1980 to 2015, China's GDP increased 18-fold. But energy consumption was only 5-fold. Would India and other countries (Africa) use older technologies? Sure, but they won't be the old ones from 1950-1970's USA; they will be 1990-2010's USA (assuming the US keeps up the technological improvement pace).


They mention that "Peak Oil" might be around 2025. Not that we don't have anymore, just that we don't have the demand increase.

I think there will still be oil demand and obviously replacement drilling. But with fracking and the transition from carbon to electrical economy (battery storage, solar, etc.), the demand for HC fuels will take a beating. What's going to happen to those that are in the industry still (with 25+ years before retirement)?


That's what I wonder about.

~egon

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Also, I can help but wonder what currency manipulation played in those charts? 1971 removal of the convertibility of dollars to gold, and the impact of our monetary policy. There were also post 9/11 mini QE type policies to encourage spending after coming out of the dot com boom and obviously QE 1 through 3 to further throw trillions into our money supply. Timeline on the chart scream correlation at the very least.

I just don't see how we replace the HC unless we transition to nuclear electricity generation on a much larger scale. Even so, HC goes into everything we touch everyday.

curious who the seller was.

http://www.star-telegram.com/news/business/article150775237.html

They mentioned India, but they feel that India won't have the same effect on the market that China did.

Part of it was mentioned by me above; when they start doing things (urbanization), they will be using later technology. Moving to cars and middle-class lifestyle, this will cause an uptick in demand, but if 1st world countries are causing a fall in demand (like the US not needing oil/steel/etc.), they would just 'pick up the slack', not cause a fundamental increase in demand.

Quote:

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'cheap' energy storage

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Essentially batteries or capacitors or something to store produced energy. Current examples would be pumping water back into a dam (cheapest and easiest), but not universal in it's application. LiON batteries would be another option, but currently kind of expensive (the report mentions $200/ MWh; would need about $20 MW/h to be universal). There are other batteries, such as flow batteries, that are being researched, but not fully commercialized yet. Something to smooth the peaks and valleys of power production with renewable energy.



I can try to get a digital copy of the report. If you want, you can email me at sj _ p y r o at hotmail (take out spaces).

~egon

TxAg20 said:

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The 1st supercycle was entirely artificial supply constraints, not a fundamental supply-demand problem. The 2nd supercycle started with true supply-demand imbalance and persisted on manipulation of monetary policy. We were getting back to supply-demand balance before the recent OPEC cuts. I'm an oil producer and I wish they hadn't cut. Now price is at the mercy of OPEC (which makes them a legitimate cartel again) and not back to supply and demand. OPEC cuts make it a little easier today, but they prolong getting back to a supply-demand balance.

Monetary policy and to a lesser extent, recent OPEC cuts, have created a monster of private equity and public growth companies pushing service prices and acreage prices higher. Frac prices are higher today than they were when oil was $100/bbl in 2014. Acreage prices are higher as well. That's because demand is there from private equity backed companies who don't need to have positive cash flow, but rather prove a concept so they can sell to a public company at a large multiple. The public company then has to develop that acreage before they get too far behind the time value curve. The public company doesn't have to be cash flow positive either. They just need to show NAV growth. Finally, you have companies like mine that don't want to work for a private equity company or shareholders. We're the tortoises of the industry and we have to work within cash flow. Manipulation of commodity prices works against us as we have to depend on prices of acreage and services (what we buy) to line up with commodity prices (what we sell). This isn't a pity party, because we also have to option of selling or going public, but we believe long-term, we're better off where we are.

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I agree that the first cycle was due to OPEC saying "Nope!" and cutting supplies. But that cause the first real push for energy independence and started the conversation about conservation. But the rush to fill in the artificial supply issue caused an oversupply of the market and the first crash. I remember those times, as my dad works(ed) for a IOC and wondered if he would be laid off.

I think that OPEC is trying to be a cartel again, but I don't think they have the power anymore. They can lower the price by pumping more, but I don't see them raising the price (short of stopping production). To me, it looks more like a supply-but-no-demand problem. If OPEC cuts and prices rise, the US is going to start producing more, which (should) lower prices.

I think a lot of the QE pushed those that were trading in oil before (speculation) to move to owning the assets in the hopes that there is a 'return to normal' of $100 BBL. How to pull that money out is anyone's guess. I have a feeling that they sunk $X into and won't take anything less than $X or $X+Y.


I've always felt that the price of oil for a while was whatever a group of princes in the ME felt it needed to be to fund their lifestyle and to an extent, their country. Now that they got used to higher prices (and the countries did too), they need/want to go back. But the US kind of 'unleashed the beast' and that won't really happen. And if there is a change to the overall HC market (lessening demand or overall less need), things get real fun, real quick.




Ragoo:
I agree that everything we do touches HC. But I think a big disruption in the market would be a changing of fuels. If you made it so that 1 MMBBL/day is not needed in fuels (gasoline), that would potentially force some refiners out of business. 40-50% of a barrel becomes gasoline in the US. The need for plastics and chemicals are still there (if not increased), but what was once seen as a by-product (chemicals/plastics) would now be the main player and what was once the main player (fuels) now has to take a backseat.

~egon

Is anyone else seeing a Q3/Q4 price dip due to increasing domestic shale supply? The data I'm looking at shows prices dropping if OPEC doesn't increase the cuts. I'm in acquisition mode but I can't help to think we will test low 40's and possibly lower again. Just yesterday I was on a major shale producer location where IP30's are greater than 2000 BOPD with multiple pads coming online at once. One well was over 5000 BOPD.

I find the take that "ride sharing" will have a significant impact on demand curious.

Are we referring to multiple people using the same car at the same time to go to the same place (car pooling)? If so, I'm not sure there is significantly more adoption than efforts in the past decades has produced. Thus, not a significant decrease in HC demand as those gains have likely been achieved.

On the other hand, some sort of vehicle on demand type approach like car2go or even uber (and ultimately self driving vehicle on demand) doesn't necessarily have a significant decrease on the total number of miles driven, and thus limited impact on HC demand.

BiochemAg97 said:

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nm

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Quote:

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Something to smooth the peaks and valleys of power production with renewable energy.

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yeah, that would be nice. but, correct me if i'm wrong, we're nowhere really even close.

in my mind it would need to commercialized to the extent that it be affordable and practical for residential adoption

that's where the solar could make sense and make some hay

a breakthrough in battery tech would change the world. but that's been true for the last 50+ years.

many companies are going after scalable, affordable solar and storage technologies, both at the consumer level and the utility-scale level.

Remember, not everyone can put solar panels on their roof due to house orientation. Community solar gardens might be the answer there, but as mentioned, we are still aren't close to making solar and storage ready for primetime.

My home is efficient enough (and small enough) that I rarely crack $100 for energy bills. Most of the year I am around $60, why would I care about spending money on solar panels when they would cost multiple years of bills to install?

Dr. what is your background?

Also I have read some of that report and had similar thoughts prior to the report. This past 5 years has caused a major uptick in disruption. I have been trying to tell anyone who listens at our company (one of the larger energy companies) that we NEED to be moving even more toward chemicals. I am no scientist, but everything we touch is made from chemicals. As cars become more efficient and people start sharing ubers to work or moving into the city closer to their jobs, gasoline demand will continue to decrease.

Sure, emerging markets are going to increase, however, like Dr. stated, countries like India will be the type of countries in the long term that stabilize the demand as the US moves from gasoline demand. Being a younger millennial, I can tell you that more and more younger people are living with coworkers and riding to work, moving into the city and taking the metro or light rail, or taking ubers to work.

Amazon is looking at getting into pharmaceutical sales and delivery. They have a device that can size you up on a suite and then you can tell that device to order the suite for you. They opened grocery stores that you can walk out and get billed to your account without waiting in lines. My point of this is that these companies are in a race to automate peoples lives. The faster one company develops something the quicker the next company tries to develop something new. We are seeing things now that we could only imagine before and these disruptions will and have impacted the oil and gas industry.

Comeby! said:

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Is anyone else seeing a Q3/Q4 price dip due to increasing domestic shale supply? The data I'm looking at shows prices dropping if OPEC doesn't increase the cuts. I'm in acquisition mode but I can't help to think we will test low 40's and possibly lower again. Just yesterday I was on a major shale producer location where IP30's are greater than 2000 BOPD with multiple pads coming online at once. One well was over 5000 BOPD.

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One thing to look at is how fast these wells start to decline. The initial IP's are great, but look at the decline curves and you get other answers. Goldman has a very negative outlook, but they always do. Again, the real answers lie with the pipeline companies and I've been told that they have excess capacity even know they are throwing out increasing production numbers. US inventories fell again, by 1.8 million barrels, and there is a surge in refinery utilization which bodes well for crude in the upcoming weeks. The supply/demand balance is already taking place according to the reports that I've been reading. They also did note that there could be a price dip due to increase shale production, but that will be short lived.

India will be the new China. 1.6 billion population, with roughly 200+ million having internet access. The growth concerns are real. Sure, they may drive more efficient autos, but those will still need fuel. As well, China is still adding thousands of autos every month, again, increasing demand. Never say that another boom won't happen, because it will, we just don't know when and to what degree. Oil is not renewable, so once burned, it's gone.

I didn't read every reply since your post, but PJM in the northeast has a lot of recent developments in battery storage in the power generation industry.

It's gaining traction, albeit on a residential and neighborhood/community level at this time.

nu awlins,

If a boom does happen I can guarantee it will not be in the US.

Correct.I just out of a meeting with a major PE company where they showed a slide that had a base production decline of 20% in 2005 vs 2016 of 34%. They also mentioned than US oil demand is only increasing 1% per year. While 20% to 34% decline is significant, we arent talking about the same well count or total production. When looking at the shale oil production data, it's hard to argue that something has to give. Looking at the shale vs legacy (base) production, the base decline has been offset by the shale oil however it doesnt take too many more shale oil rigs to make the total oil production jump.