Offshore oil gas too expensive? valueless? Years of Offshore Investments Could be Valueless

[ceo_energemsier + 1,818]

Years of Offshore Investments Could be Valueless

 

 

Years of Offshore Investments Could be Valueless

 

 

 

 

 

 

 

Years of offshore investments could be valueless, according to Rystad Energy.

 

Years of offshore investments could be valueless.

That’s according to Rystad Energy, which stated that international exploration and production (E&P) companies are struggling to make money from offshore investments made during the latest investment upturn.

In a new study, Rystad evaluated all offshore oil fields sanctioned since 2010 and ranked them by estimated value per barrel of oil under various oil price scenarios. According to the company, entire vestiges of offshore field development projects will fail to offer a return on investment in today’s oil price environment.

For example, Rystad noted that offshore projects sanctioned between 2010 and 2012 have “barely been able to generate any value” for E&P companies and highlighted that projects sanctioned between 2013 and 2014 are “expected to have no value creation”.

In addition, Rystad revealed that for upstream companies to come out of the 2013-2014 investment years without “massive losses”, the oil price will need to increase to around $70 per barrel.

Looking further ahead, Rystad said value creation is positive for sanctioning between 2015 and 2018, even when applying a future oil price of only $40 per barrel.

“Looking back at the offshore projects sanctioned between 2010 and 2014 with the knowledge we have today, we see that the last offshore investment cycle is struggling to create value,” Espen Erlingsen, head of upstream research at Rystad Energy, said in a company statement.

“High development costs combined with low oil prices have severely undermined the profitability of these assets,” Erlingsen added.

“With the pivot in development costs from 2015 onwards, the projects sanctioned over the last four years are in a much better position,” the Rystad representative continued.

[Ward Smith + 6,615]

Yup about what I said elsewhere to @James Regan. To commit to offshore today, you'd better have a crystal ball for oil prices well into next decade. 

[Douglas Buckland + 6,308]

Well, couldn’t they simply leave the deepwater oil in the ground, use the onshore/shallow water assets to pay the bills, dry up the supposed oil in storage, drive the price up....then go after the deepwater assets?

Painful, yes. What’s your option?

[ceo_energemsier + 1,818]

Brazil's $50 Billion Oil Boom Is Falling Apart

 

Exxon may not be interested in stepping up to the bidding plate at Brazil’s massive $50 billion transfer of rights auction next week, because the oilfields up for grabs come with a hefty price tag, Exxon’s president of exploration, Stephen Greenlee said in an interview with Bloomberg.

Exxon, Greenlee explained, already holds licenses offshore Brazil, but when it bought those rights, the assets were far less expensive than what the Buzios oilfield is expected to go for this time around.

“Whether or not we participate, it would be wrapped up in how we would see that opportunity versus all the other investment options, because there are a lot of investment options out there right now,” Greenlee said, adding that Exxon wasn’t the only oil company with reservations about the high price tag.

 

Already Total SA, Repsol, and BP Plc have said they are not interested.

No doubt, Brazil’s auction is offering as close to a sure thing as you can get—but oil companies are worried that the high price tag of the rights would eat into any profits, shrinking it to less attractive levels.

 

For Exxon, who has gone gangbusters into Guyana, Brazil is not the last frontier. But it is not definitively bowing out of Brazil. Exxon will consider the opportunity, weighing it against available opportunities in US shale and LNG projects.

Brazil’s transfer of rights auction is scheduled to take place on November 6. Petroleo Brasileiro SA is intending to “bid to win” Buzios, which has been hailed by Exxon as the “largest and most prolific” deepwater discovery ever.

Next door to Brazil, ExxonMobil is currently pushing ahead with Hess on its Guyana Liza Phase 1 discovery, with hopes of achieving first producing there by December. The US oil major is also looking to increase its oil production in the Permian to 1 million bpd by 2024

 

https://oilprice.com/Latest-Energy-News/World-News/Brazils-50-Billion-Oil-Boom-Is-Falling-Apart.html

[ceo_energemsier + 1,818]

[Ward Smith + 6,615]

12 hours ago, Douglas Buckland said:

Well, couldn’t they simply leave the deepwater oil in the ground, use the onshore/shallow water assets to pay the bills, dry up the supposed oil in storage, drive the price up....then go after the deepwater assets?

Painful, yes. What’s your option?

You may have hit the nail on the head. As the Brazil article above says, Exxon has multiple investment choices and offshore is only one of those. 

Let's start to analyze the pros and cons of offshore. 

Cons: Expensive, harsh and unforgiving environment, dangerous with potentially massive liability (e.g. Macando).

Pros: Potentially excellent daily production, unlimited and essentially free water drive potential, known quality basins, limited remediation expense (as long as there's no disaster). Finally, and perhaps the most overlooked positive positive, extremely inexpensive product shipping opportunity. The VLCC's can just float nearby and load up. 

There may be others I haven't thought of on both sides. 

[Gerry Maddoux + 3,627]

From reading the press, watching television, and especially reading what's on the Internet, you'd think that, a) there was going to be no further progress toward carbon capture, b) there is some magic bullet to replace petroleum compounds in drugs, plastics, everything we use, c) an alternative source of fuel is already available, just not being used as it should. 

Come January 1, an event is going to occur which basically overshadows the entire land-based use of fossil fuels. If that article is right, and I don't really trust anything I read in The Guardian, then it's as if all 760 million land-based vehicles on the planet suddenly became EV's. 

I am going out on a limb here. With almost 300 land rigs laid down in the last year in the United States and Canada, the attack on Abqaiq, the sanctions on Venezuela and Iran, suppression of the global economy because of the trade war, a full-time propaganda machine . . . . . . I believe we'll see an oil shock at some point in the not too distant future. Maybe not in 2020, but 2021? 

This Age of Petroleum ain't over 'til it's over. Why wouldn't three or four of the biggest and most compatible super-majors go in together and buy the entire Brazil pre-salt Buzios? Man, that thing is a monster . . . . . . and everyone in the business knows it. I mean, what if China and Russia pool resources and buy it? They already hold so much paper on Venezuela that every last drop of oil goes to pay the interest. Venezuela is now Putin's punch. Brazil? Seems a shame to let someone else get that stuff. 

[ceo_energemsier + 1,818]

[ceo_energemsier + 1,818]

Nigeria's Cost of Oil Production Is Unsustainable - Minister

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Nigeria must do all within its powers to reduce the cost of crude oil production to help boost revenue generation for economic growth and national development, the Minister of State for Petroleum Resources, Timipre Slyva, has said.

Mr Sylva, who spoke at a seminar on effective cost management in the oil and gas sector in Abuja on Tuesday, said the current production cost of over $30 per barrel in Nigeria was not sustainable.

The minister was represented by his Chief of Staff, Moses Olamide.

The seminar was organised by the Petroleum Technology Development Fund (PTDF) in collaboration with the Quantity Surveyors Registration Board of Nigeria (QSRBN).

 

 

"Let me go back memory lane. The technical cost of crude oil production in the 1980s/90s was around $4 per barrel. In early 2000, it was between $5 and $6 per barrel. Today, it is over $35 per barrel.

"It is interesting to note that some countries, like Kuwait and UAE, are producing at less than $10 per barrel.

The minister said in the regime of $50/60 per barrel price of crude oil, a cost of production of over $30 was unsustainable, adding that was why Nigeria needs to come up with the idea on what needs to be done to reverse the trend.

The minister said Nigeria, the largest economy in Africa with a gross domestic product (GDP) of about $400 billion and a population of over 180 million needs aggressive industrialisation and economic diversification.

In spite of the quest for economic growth and great investment opportunity in the oil and gas sector, Mr Sylva said the cost of crude oil production in Nigeria remained one of the highest in the world.

 

He said the government had set the target through an industry policy document to reduce the cost of crude oil extraction by at least 30 per cent.

The document, he said, recognised that to cut production cost, reducing contract approval cycle, promoting transparency, and regulatory transaction cost, among others, were imperatives.

 

 

"Currently, there is an industry committee headed by the Permanent Secretary on the reduction of crude oil production cost and crashing of contracting cycle in the ministry," he said.

Commendation

While commending PTDF and QSRBN for organising the workshop, the minister urged the Quantity Surveyors and Cost Engineers to deploy the principles of total cost management and come up with a solution on how to minimise the impact of cost drivers.

 

He named the drivers to include corruption, national body policies, infrastructure deficit, bureaucracy, regulatory issues, insecurity in the oil-producing areas, among others.

The minister urged the engineers to always come up with ideas on how to better achieve effective cost management in the oil sector.

Meanwhile, the Minister of Works and Housing, Babatunde Fashola, said the oil and gas sector was one of the most important sectors in Nigeria's economy as it contributes about 10 per cent to the national GDP.

Mr Fashola said President Muhammadu Buhari's administration placed a high premium on projects and administrative cost reduction, adding that organising the seminar was in consonance with the next level agenda of the present administration.

"The involvement of Quantity Surveyors in oil and gas sector, such as exploration, pipelines installation, road, bridges, building, heavy engineering services with other professionals will ensure efficient allocation and utilisation of resources, probity, value for money in our infrastructural development in Nigeria," the minister said.

Also, the Executive Secretary of PTDF, Bello Gusau, said in the fund's industry skill and competency gap analysis, issues of cost engineering control, estimating was among the areas of greatest challenge in the oil sector.

He assured that the PTDF was willing to partner and collaborate with the industry to find the solution to critical issues affecting the full realisation of government vision for the oil and gas sector.

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