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A picture that is worth a thousand words - in summary, Coal falling, Crude and Nuclear flat with Nat Gas and Renewables rising.

Doesn't look like US O&G business is going anywhere in a hurry - but with seemingly greater emphasis on G than O.

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7 hours ago, AcK said:

image.png.957aee96c67834bbe3560c23148f95bf.png

A picture that is worth a thousand words - in summary, Coal falling, Crude and Nuclear flat with Nat Gas and Renewables rising.

Doesn't look like US O&G business is going anywhere in a hurry - but with seemingly greater emphasis on G than O.

Even more, EIA says planned new electrical generation of 24 GW capacity (not all energy consumption as in the graph above) is to be made up of 46% (11 GW) wind, 18% (4.3 GW) solar, 2% (0.5 GW) other, and only 34% (8.2 GW) natural gas. Electrical retirements of 8 GW are 53% (4.2 GW) coal, 27% (2.2 GW) natural gas, and 18% (1.5 GW) nuclear.

This is a very substantial shift from last year where natural gas made up 60% of all new electrical generation.

In a couple of years, natural gas may well start shrinking not just market share, but in absolute terms in the US electricity market.

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This is a question, not a comment.

If oil production/exploration peaks, won't that lead to a peak in natural gas production/exploration?

From my perspective they are handcuffed together. The same rigs, tools, equipment and personnel are utilized to drill gas and oil wells. If operators, service companies and equipment/tubular suppliers can not generate sufficient profits exploring for and producing gas as opposed to crude, isn't there a risk of these companies simply disappearing?

Okay, that's two questions...

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On 7/3/2019 at 11:29 PM, Douglas Buckland said:

This is a question, not a comment.

If oil production/exploration peaks, won't that lead to a peak in natural gas production/exploration? 

From my perspective they are handcuffed together. The same rigs, tools, equipment and personnel are utilized to drill gas and oil wells. If operators, service companies and equipment/tubular suppliers can not generate sufficient profits exploring for and producing gas as opposed to crude, isn't there a risk of these companies simply disappearing?

Okay, that's two questions... 

I'm not sure I understand the question.  As I see it, gas supply is coupled to oil at low gas prices and decoupled from oil at high gas prices. This is because, at low gas prices, gas can only be produced as a byproduct of oil. 

The price of gas depends on whether demand outstrips the supply of associated gas.  Electricity markets have substitutes for gas, so they can only drive the price of gas so high before demand plateaus.  Home heating gas demand is being pressured by increased efficiency and improving heat pump technology.  Petrochemical demand is increasing for now, but may struggle as petroleum products are recycled at higher rates.  I'm not sure about industrial gas demand. 

Thus, it's theoretically possible that gas prices could increase and gas supply decouple from oil, but by no means guaranteed. 

Is that what you were getting at?

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Ben,

What I was trying to get at is that oil and gas exploration are essentially one and the same industry. If oil exploration (the big profit maker of the two) is no longer pursued due to demand, green issues, etc.... then exploration for natural gas should falter as well.

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(edited)

Gas and oil used to track relatively close to each other from a cost per btu. That all changed with fracking. Unconventional gas in the USA fundamentally changed the game. And this wasn't associated gas. I suspect the Marcellius play made this happen for than the Texas plays.

Great graphic for coal's trend.

Edited by John Foote
additional info
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On 7/3/2019 at 9:02 PM, AcK said:

image.png.957aee96c67834bbe3560c23148f95bf.png

A picture that is worth a thousand words - in summary, Coal falling, Crude and Nuclear flat with Nat Gas and Renewables rising.

Doesn't look like US O&G business is going anywhere in a hurry - but with seemingly greater emphasis on G than O.

It would be interesting to see this on a world-wide basis. 

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(edited)

On 7/4/2019 at 6:29 AM, Douglas Buckland said:

From my perspective they are handcuffed together. The same rigs, tools, equipment and personnel are utilized to drill gas and oil wells. If operators, service companies and equipment/tubular suppliers can not generate sufficient profits exploring for and producing gas as opposed to crude, isn't there a risk of these companies simply disappearing?

I can only speak from the perspective of offshore. But if that is a bellweather then what will happen is: 

1) Restructuring which will include debt hair-cuts

2) Retirement of old and least efficient equipment

3) focus on life extension projects / tech - i.e. low hanging fruits. 

and p.s there is a lot of associated gas being flared around the world. How much does the gas price need to increase to justify the capex in capturing the gas ? I know it is being looked at in several African countries. 

Edited by Rasmus Jorgensen
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1 hour ago, Rasmus Jorgensen said:

I can only speak from the perspective of offshore. But if that is a bellweather then what will happen is: 

1) Restructuring which will include debt hair-cuts

2) Retirement of old and least efficient equipment

3) focus on life extension projects / tech - i.e. low hanging fruits. 

and p.s there is a lot of associated gas being flared around the world. How much does the gas price need to increase to justify the capex in capturing the gas ? I know it is being looked at in several African countries. 

You are correct IF these toolmakers, third party service companies and drilling contractors decide to remain in the game.

These outfits have been beaten to their knees during the present slump and have been forced to cut their pricing structure just to keep their people and assets working. If oil is no longer in demand (and they once again have to lower prices to reflect the differential between 'exploring and reducing to possession' gas and oil), I can see many simply getting out of the game.

Keep in mind that oil, and for this discussion, and gas companies are unable to drill for anything on their own. They do not own drilling rigs (as a rule), they do not have the people or equipment to run and cement casing, they can not log their wells etc... In a nutshell, if the drilling contractors and third party services fade away - nobody will be exploring/drilling!

How about the casing manufacturers? If there is not a significant market for the various grades and weight of casing, will they continue to provide it?

I really do not think that people have given enough thought to the knock-on effects that getting away from oil will bring.

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30 minutes ago, Douglas Buckland said:

These outfits have been beaten to their knees during the present slump and have been forced to cut their pricing structure just to keep their people and assets working. If oil is no longer in demand (and they once again have to lower prices to reflect the differential between 'exploring and reducing to possession' gas and oil), I can see many simply getting out of the game.

Offshores problem is not a low oil price. It is over-capacity on the equipment supply side. This was evident already in 2012 before the crash. Credit was virtually free and lots of asymmetric risk was taken as offshore was banks and investors favourite child. Capital is no longer available in excess and this is forcing a correction. The oldest and most inefficient rigs and OSVs need to be scrapped. Some suppliers will go bankrupt, but the supply-chain will survive. 

The future will be mega projects like Guyana and life extension projects which will also require drilling.

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13 minutes ago, Rasmus Jorgensen said:

 

Offshores problem is not a low oil price. It is over-capacity on the equipment supply side. This was evident already in 2012 before the crash. Credit was virtually free and lots of asymmetric risk was taken as offshore was banks and investors favourite child. Capital is no longer available in excess and this is forcing a correction. The oldest and most inefficient rigs and OSVs need to be scrapped. Some suppliers will go bankrupt, but the supply-chain will survive. 

The future will be mega projects like Guyana and life extension projects which will also require drilling.

This was evident years ago when offshore drilling contractors were offering rigs which had exceeded the life of their hulls. Upgrades, blisters to increase the variable deck load and newer drilling equipment is fine, but the hull itself was questionable. I am surprised that the insurers went along with this.

Mega projects will add bang for the buck in some ways, but if it is no longer financially viable to stay in business in a gas dominated arena, the drilling contractors and third party services will scale back until exploration for new gas reserves will be difficult and likely very expensive.

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2 hours ago, Douglas Buckland said:

This was evident years ago when offshore drilling contractors were offering rigs which had exceeded the life of their hulls. Upgrades, blisters to increase the variable deck load and newer drilling equipment is fine, but the hull itself was questionable. I am surprised that the insurers went along with this.

Mega projects will add bang for the buck in some ways, but if it is no longer financially viable to stay in business in a gas dominated arena, the drilling contractors and third party services will scale back until exploration for new gas reserves will be difficult and likely very expensive.

Unfortunately not much foresight was given when Oil was at +/- 120Bbl and rigs were being built at staggering rates based on that price range. Then with the Dual Activity Rigs being launched by Transocean we saw the profitable 4th Gen Units be superceeded to 5,6 and 7th Gen almost overnight (in industry terms). What we see now is rigs designed to work at a rate of 300-500k per day being put out at break even costs 130k per day or 6gen rigs being scrapped, this is as mindless as building the rigs as above.

What we need to be careful about is that we don’t arrive at the same position in a couple of years as we will see a lack of units and a lack of experience. This may please the Greenies but they need to be sure they have won a battle that they can hold the fort. Systematic destruction of the offshore oil industry is a bold move to make in the current climate of change ( no pun intended) we may be hurting ourselves in the long run, no one has really given the aftershock effect of “weening” humans off of carbon fuels and products made enough thought.

Will be interesting to see what we will replace petrochemicals with moving ahead.

🤔

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The onshore drilling, outside the US is taking a hammering as well.

Onshore fields are easier to drill and once drilled it is easier, and cheaper, to build the infrastructure to get the product to market.

Assuming you can get a proper sized rig for what you intend to drill (hopefully with a topdrive), you can get any rig to drill onshore.

Onshore is likely to start back up sooner than offshore strictly due to cost.

The big issue, which you pointed out, is where are you going to find experienced people to crew ANY rig? The Big Crew Change is upon us. I'd like to get another 5 years in, but most of the guys my age have now thrown in the towel. If or when the field turns back around, experience will not come cheap. I have no idea how we'll have time to train roustabouts, roughnecks, crane operators, drillers, subsea engineers, etc... Offshore you will have the added burden of finding experienced barge departments and DP operators!

I can see where rig accidents and well control issues will skyrocket until we get a whole new generation trained up.

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(edited)

20 hours ago, James Regan said:

This may please the Greenies but they need to be sure they have won a battle that they can hold the fort. Systematic destruction of the offshore oil industry is a bold move to make in the current climate of change ( no pun intended) 

I will say this again : Offshore did itself in. No Capital discipline at either banks, investors or the supplychain. Look at Seadrill, Solstad, Bibby, Emas ad infinitum. And on a personal level, too. 5 good years from 2009 and you could almost retire. But a lot of people lived a weekend millionaire lifestyle... 

 

Edited by Rasmus Jorgensen
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20 hours ago, James Regan said:

What we see now is rigs designed to work at a rate of 300-500k per day being put out at break even costs 130k per day

https://www.offshoreenergytoday.com/ocean-rig-snaps-up-drillship-at-auction/

About 15 % of build cost. This is the type of correction / restructuring I am talking about. I wonder what will happen to Dolphins fleet? 

Once this historic correction have been completed (and we are just getting started) offshore will be much more competetive. 

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2 hours ago, Rasmus Jorgensen said:

I will say this again : Offshore did itself in. No Capital discipline at either banks, investors or the supplychain. Look at Seadrill, Solstad, Bibby, Emas ad infinitum. And on a personal level, too. 5 good years from 2009 and you could almost retire. But a lot of people lived a weekend millionaire lifestyle... 

 

I remember a lot of Sub Sea Engineers on contract charging $1800 AUD a day and sp**king the lot up the wall in Bali / 150K Audi / Mercs etc

When I got offered a contract in 2013 (not quite as much as above) I said to Mrs W this is completely unsustainable and will never last. We lived comfortably but not excessively. During this time before the party came to an end I put $100K in Superannuation and saved another $150K . Mrs W also used the opportunity to put an additional $50K in her super.

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47 minutes ago, NickW said:

I remember a lot of Sub Sea Engineers on contract charging $1800 AUD a day and sp**king the lot up the wall in Bali / 150K Audi / Mercs etc

When I got offered a contract in 2013 (not quite as much as above) I said to Mrs W this is completely unsustainable and will never last. We lived comfortably but not excessively. During this time before the party came to an end I put $100K in Superannuation and saved another $150K . Mrs W also used the opportunity to put an additional $50K in her super.

Subsea Engineers in the past we’re paid justly as the job demanded skilled people who were not afraid of going whole hog, this was when there was only one man to support the dept, over the years we got assistants and then it went crazy as the rigs got bigger. The rate you quoted is low but the rates were kept high but the quality most definitely deteriorated, as Doug said wait for the big crew change and we will see more of what we don’t want to. High NPT and worse.

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(edited)

9 minutes ago, James Regan said:

 Subsea Engineers in the past we’re paid justly as the job demanded skilled people who were not afraid of going whole hog, this was when there was only one man to support the dept, over the years we got assistants and then it went crazy as the rigs got bigger. The rate you quoted is low but the rates were kept high but the quality most definitely deteriorated, as Doug said wait for the big crew change and we will see more of what we don’t want to. High NPT and worse.

^this was the problem. 

I don't think the big crew-X will have the effect that many think. Offshore will be a lot different 5 years from now. Still alive, but very different. A few big well capitalized global players and then a lot of regionally strong players. Overall less volume, but more profitable. 

The 2 growth industries to watch will be offshore renewables and offshore mining. 

Edited by Rasmus Jorgensen
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22 minutes ago, Rasmus Jorgensen said:

^this was the problem. 

I don't think the big crew-X will have the effect that many think. Offshore will be a lot different 5 years from now. Still alive, but very different. A few big well capitalized global players and then a lot of regionally strong players. Overall less volume, but more profitable. 

The 2 growth industries to watch will be offshore renewables and offshore mining. 

With developments with floating turbines that must create a lot of work for S/S Engineers with the anchoring and cables.

Opening up offshore to several hundred metres waters depth will give an exponential rise in wind capacity opportunities. West coast of Scotland, Ireland and Norway come to mind.

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4 minutes ago, NickW said:

With developments with floating turbines that must create a lot of work for S/S Engineers with the anchoring and cables.

Opening up offshore to several hundred metres waters depth will give an exponential rise in wind capacity opportunities. West coast of Scotland, Ireland and Norway come to mind.

If they can see past their anti-green sentiment that is.... 

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(edited)

4 hours ago, Rasmus Jorgensen said:

I will say this again : Offshore did itself in. No Capital discipline at either banks, investors or the supplychain. Look at Seadrill, Solstad, Bibby, Emas ad infinitum. And on a personal level, too. 5 good years from 2009 and you could almost retire. But a lot of people lived a weekend millionaire lifestyle... 

 

From my experience they completely ignored all the small and medium size savings which if addressed collectively would have made the operations more efficient.

I recall the company I worked for sitting on a pile of radioactive scale costing half a million bucks a year to store. From the data I had I estimated about a third of it could go straight in landfill as it was below the bq/kg threshold. In 2014 for  $56000 I could get the whole lot analysed and for the same sum dispose of about a third of it. Pay back in less than 1 year. The Production manager (S/S Manager)  couldn't be ar$ed and from what I have heard its still sitting there in 2019 costing half a million a year in storage fees.

I also did a stint in mining when I first went to Oz and identified in some water wash systems for vehicles that they were running 24/7 when they only needed to be run for about 2 hours. Net cost for the company across the entire estate  for electricity alone  about $80K a year. Cost to rectify - $1000 worth of time switches and about 12 hours of electricians time. Put in the various recommendations. Company couldn't be bother with such a small sum. 18 months later they were auditing paper clip usage.

Edited by NickW
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48 minutes ago, Rasmus Jorgensen said:

If they can see past their anti-green sentiment that is.... 

Are you referring to Subsea Engineers or am wearing my heart on my sleeve?

Anyway when you have devoted your whole life to something it’s hard to see it any other way, that said we are diversifying and we are dealing with the current market, gone are the days of changing the car as the ashtray is full.

The client day rates haven’t changed that much the problem is that due to the industry now being swamped with “subsea Engineers” (loose term as 99% of SSE are not degreed) the industry is full of fly by night companies offering SSE for rates that most won’t dance, there lies the problem who is looking after secondary well control on these units?

As we move ahead we will see more incidents based on companies throwing warm bodies at a position that requires a little bit more.

Sour grapes ? No personally I have kept busy but many a good man has lost his livelihood and the industry good “Engineers “

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1 hour ago, NickW said:

With developments with floating turbines that must create a lot of work for S/S Engineers with the anchoring and cables.

Opening up offshore to several hundred metres waters depth will give an exponential rise in wind capacity opportunities. West coast of Scotland, Ireland and Norway come to mind.

Were talking about different animals. Subsea Engineers come in many different forms.

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On 7/19/2019 at 4:19 PM, James Regan said:

Are you referring to Subsea Engineers or am wearing my heart on my sleeve?

I was trying to be funny, but I guess I didn't succeed? 

Anyways, my point was that in offshore there are a lot of disciplines that cross over - offshore ops, structural engineering, electrical engineering, cable-lay is not too different from flex-lay. The money is different, but to be honest rates were getting too high in O&G; or atleast there was an obvious disconnect between quality and price. Up untill recently some people in Aberdeen would still scuff their nose at offshore renewables. Now, SS7, Technip & Heerema are into renewables construction.

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