How is E&P of Marginal Oil on the UKCS Similar to the Shale Oil Operations in the US?

[Douglas Buckland + 6,308]

In an article by Tsvetana Paraskova titled "What's Behind The North Sea Spending Spree" posted 21 July 2019, she wrote;

"Large operators offshore the United Kingdom have been looking at ways to cut costs at major projects, and the majors and smaller players alike are also developing resources via tie-backs to existing infrastructure to reduce expenditure. Leaner quicker-return projects, typical of the U.S. shale patch, have become the norm in the conventional UK North Sea basin."

I find it difficult to find any link between the development of marginal fields in the UK North Sea and the shale oil operations in the US, to me, this is comparing apples to oranges. In the North Sea, they are taking advantage of existing infrastructure to reduce the cost of getting the 'marginal' oil to market. Where is that occurring in the shale oil operations in the US? If anything, they are being forced to build more infrastructure to get their product to market.

The article goes on to say;

"Exploration and production companies across the UKCS are now “more focused on spending $100 million and recouping it over five years,” instead of investing US$1 billion over seven years and recoup that huge investment over 30 years, Chris Boulter, UK business development manager at UK company Neptune Energy, told Bloomberg."

It is my understanding that most, if not all, of the shale oil operators in the US, have NEVER shown a profit, in all of the years that they have been operating. I doubt that the shale oil model in the US is of interest to the "Exploration and production companies across the UKCS...", or for that matter, anyone on the planet involved in exploration and production.

In my opinion, it is reckless to continue praising the 'shale oil miracle' in the US, at least until they can show a profit and prove that has reasonable longevity. 

[Rasmus Jorgensen + 1,169]

11 minutes ago, Douglas Buckland said:

I find it difficult to find any link between the development of marginal fields in the UK North Sea and the shale oil operations in the US, to me, this is comparing apples to oranges.

I actually think it is good comparison. 

In my view, structural baseload is coming from conventional and new deepwater mega-projects. For the past 5 years shale and marginal offshore have been competing on investment money for projects. For the past 5 years shale have been winning. I think the overlooked factor in this is investor psychology. 

[oilexpert.nl + 36]

In hindsight, yes. But shale oil did make things happen. Now the US has become a major oil exporter, see how the US changed their foreign politics. Perhaps this is the biggest impact. Even with todays low interest rates this industry has big problems with a potential oil oversupply for the years to come. So the miracle is more how it changed the position of the US and their thinking. Money wise it should not be praised.

[Douglas Buckland + 6,308]

57 minutes ago, Rasmus Jorgensen said:

I actually think it is good comparison. 

In my view, structural baseload is coming from conventional and new deepwater mega-projects. For the past 5 years shale and marginal offshore have been competing on investment money for projects. For the past 5 years shale have been winning. I think the overlooked factor in this is investor psychology. 

How has 'shale been winning'? If you are competing for investment money, at some point those investors want to see a return on their investment - correct? If they do not, they do not invest more money (as recent developements show) and the industry dies on the vine. This is similar to a Ponzi scam.

[Douglas Buckland + 6,308]

57 minutes ago, oilexpert.nl said:

In hindsight, yes. But shale oil did make things happen. Now the US has become a major oil exporter, see how the US changed their foreign politics. Perhaps this is the biggest impact. Even with todays low interest rates this industry has big problems with a potential oil oversupply for the years to come. So the miracle is more how it changed the position of the US and their thinking. Money wise it should not be praised.

You hit the nail on the head! The US is now pumping un-needed oil into an over supplied market!

The real issue is that if the shale oil miracle actual has no 'legs' or longevity, then the whole basis and strength of the new foreign policy and the position which the US has leveraged falls apart and the US is in a much worse position regarding foreign policy.

So, unless it can be proven that the production level of US shale oil can be maintained for decades AND can show a positive cash flow, the industry will be at fault for pushing a potentially disasterous foreign policy and the penalties that entails.

[Rasmus Jorgensen + 1,169]

12 minutes ago, Douglas Buckland said:

How has 'shale been winning'?

Because there has been seriously little investment into UKCS marginal fields the last 5 years. Look where the money has been invested

 

12 minutes ago, Douglas Buckland said:

If you are competing for investment money, at some point those investors want to see a return on their investment - correct?

True. But if something doesn't start to change soon a lot of North Sea shallow water infrastructure will be decommissioned because without new satelite developments the existing infrastructure is not economically viable. 

Edited July 22, 2019 by Rasmus Jorgensen

[Douglas Buckland + 6,308]

30 minutes ago, Rasmus Jorgensen said:

Because there has been seriously little investment into UKCS marginal fields the last 5 years. Look where the money has been invested

 

True. But if something doesn't start to change soon a lot of North Sea shallow water infrastructure will be decommissioned because without new satelite developments the existing infrastructure is not economically viable. 

You are making the assumption that if investment money did not go to projects on the UKCS that it was invested in the US shale oil industry. Can you substantiate that assumption?

[Rasmus Jorgensen + 1,169]

3 minutes ago, Douglas Buckland said:

You are making the assumption that if investment money did not go to projects on the UKCS that it was invested in the US shale oil industry. Can you substantiate that assumption?

I do not have any data. But compare investment into worldwide marginal offshore 2009 - 2019 to investment into shale in the same period. I am not saying that it is the same money directed elsewhere although there is some VC overlap. I am saying that world only need so much oil. Some European investment money have probably gone into European offshore renewables instead as well. 

[SERWIN + 749]

I just wonder how long it will take for the financiers to decide that there is no money in fracking and completely cut the drillers off, they haven't been making any noteworthy return for the investors, so how do they keep getting money to drill new wells? I can see Exxon and Chevron using these types of wells to maybe use the oil when they can't get what they need through the other supply chains, they can do these without needing investors. But just to frack a well to get oil at or above current market prices doesn't make any sense to me. Seems to me they would set some wells up and leave them off until the demand is there along with the right prices for oil. 

[SERWIN + 749]

I meant below current oil prices above

[Ward Smith + 6,615]

7 hours ago, Douglas Buckland said:

more focused on spending $100 million and recouping it over five years,” instead of investing US$1 billion over seven years and recoup that huge investment over 30 years

We keep circling around the same logic drain. If you examined the books of Offshore Oil Inc. at any time in the first 6 years after they borrowed that $billion would they show a profit at today's prices? Pretend it's an offshore startup so its finances live or die off that one platform. Figure the debt service at $50,000,000 per year on that billion. Let's say they are producing 50,000 bbls per day from that well. 

[Douglas Buckland + 6,308]

6 hours ago, Ward Smith said:

We keep circling around the same logic drain. If you examined the books of Offshore Oil Inc. at any time in the first 6 years after they borrowed that $billion would they show a profit at today's prices? Pretend it's an offshore startup so its finances live or die off that one platform. Figure the debt service at $50,000,000 per year on that billion. Let's say they are producing 50,000 bbls per day from that well. 

They likely wouldn't have borrowed that $billion with oil at todays prices...