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Oil majors thirsty for reserves likely to line up for any lease sale

President Trump has uncorked yet another controversy over energy vs the environment and it promises to be a heavyweight battle.

The White House budget proposal includes a revenue line of almost $2 billion from selling oil and gas leases in the richly oil-prospective northeastern coastal plain of the Arctic National Wildlife Refuge (ANWR) in Alaska.

Until the climate change debate came along, leasing and drilling in the ANWR (pronounced an-war) Coastal Plain was arguably the most ferociously contested item on the oil and gas industry’s wish list at the national level.

First, a little background: In 1960, less than one year after Alaska became a state, Congress created the Arctic National Wildlife Range.

Twenty years later, the Alaska National Interest Lands Conservation Act (ANILCA) expanded the Arctic Range to 18 million acres, renamed it the Arctic National Wildlife Refuge, designated 8 million acres as National Wilderness, designated three rivers as National Wild Rivers, and called for wildlife studies and an oil and gas assessment of 1.5 million acres of the ANWR Coastal Plain (the 1002 area).

There is not enough space here to track the tortuous history of legal and regulatory battles and failed legislation that has marked efforts to either develop oil and gas in the ANWR Coastal Plain or to lock it up against development permanently.

Suffice to say that ANILCA granted surface and subsurface rights to the Inupiat Native Americans living near the North Slope village of Kaktovik on the ANWR Coastal Plain, seismic studies were conducted on Inupiat land, and what has been called the “the tightest hole of all time” (KIC-1) was drilled and plugged on that acreage by a group led by Chevron.

Only a handful of people have ever known the well results—and no one has spilled the beans yet.

…click on the above link to read the rest of the article…

Visualizing The World’s Deepest Oil Well

March 27, 2017

Visualizing The World’s Deepest Oil Well

In the world’s deepest gold mine, workers will venture 2.5 miles (4 km) below the Earth’s surface to extract from a 30-inch (0.8m) wide vein of gold-rich ore.

While these depths are impressive, Visual Capitalist’s Jeff Desjardins notes that mining is limited by the frailty of the human body.Going much deeper would be incredibly dangerous, as limitations such as heat, humidity, logistics, and potential seismic activity all become more intense.

Luckily, the oil industry does not have such human obstacles, and drilling deep into the Earth’s crust is instead limited by a different set of circumstances – how deep can the machinery and technology go before the unfathomable heat and pressure renders it inoperable?

THE WORLD’S DEEPEST OIL WELL

Today’s infographic comes to us from Fuel Fighter, and it helps to visualize the mind-boggling depths of the world’s deepest oil well, which is located in a remote corner of eastern Russia.

The Future of US Light Tight Oil (LTO)

March 5, 2017

The Future of US Light Tight Oil (LTO)

The future output from the light tight oil (LTO) sector of the US oil industry is the subject of much speculation. Above I present some possible future output scenarios based on a simple model of US LTO, the scenarios are compared with the EIA’s 2017 Annual Energy Outlook (AEO) reference scenario with cumulative output of 82 Gb from 2001 to 2050. The cumulative output of the model scenarios is for the same period (2001-2050).

The models all use the same well profiles from 2006 to 2016 and are based on data gathered from Enno Peters excellent blog, shaleprofile.com. A preliminary hyperbolic profile was fit to the average LTO well data and then the parameters were fit using least squares and solver in Excel so that the model matched the data for output and number of wells added each month over the period from 2011 to 2015. The data for 2016 is incomplete and this leads to an under report of wells added for most of 2016 (from March through October). For this period the wells added were adjusted so that the model matched the output data from the EIA (which is more complete than the data reported at shaleprofile.com.)

The well profiles used are shown below, two were used, a lower profile for the early period and a higher well profile for the later period. The vertical axis is output in barrels per month and the horizontal axis is months from first output.

chart/

The well profile in red (219 kb) is the basis for all the scenarios. In every case it is assumed that the estimated ultimate recovery (EUR) or total output from the well over its life starts to decrease in Feb 2017, but the rate of decrease varies from model to model, based on underlying assumptions and the number of new wells added each month.

…click on the above link to read the rest of the article…

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

February 25, 2017

CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry

According to Continental Resources website, it labels itself as America’s oil champion. To be a champion, one is supposed to be winner. Unfortunately for Continental, it’s taking a serious beating and is a perfect example of what is horribly wrong with the U.S. Shale Oil Industry.

During the beginning of the U.S. shale energy revolution, the industry stated it would make the United States energy independent. The mainstream media picked up this positive theme and ran with it. Americans who wanted to believe in this “Growth forever” notion, had no problem going further into debt to buy as much crap as they could to fill their homes with and additional rental storage units.

For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.

And a perfect example, or the “Poster child”, of what is horribly wrong with the U.S. Shale Oil Industry is none other than Continental Resources.

Again, if you go to Continental Resources website, they proudly label themselves as “America’s Champion Oil Company”:

(courtesy of Continental Resources)

Maybe Continental was America’s oil champion at one time, however if we look at their financial results, they have been receiving some serious blows to their mid section. Looking at the company’s free cash flow since 2010, it isn’t a pretty picture:

From 2010 to 2016 YTD (year to date – Q3 2016), Continental (ticker CLR) has spent a stunning $7.6 billion more on capital expenditures (CAPEX) than they made in operating cash. Of course this had a negative impact on their balance sheet.

…click on the above link to read the rest of the article…

Made For Each Other

February 13, 2017

Made For Each Other

Don’t be fooled by the idiotic exertions of the Red team and the Blue team. They’re just playing a game of “Capture the Flag” on the deck of the Titanic. The ship is the techno-industrial economy. It’s going down because it has taken on too much water (debt), and the bilge pump (the oil industry) is losing its mojo.

Neither faction understands what is happening, though they each have an elaborate delusional narrative to spin in the absence of any credible plan for adapting the life of our nation to the precipitating realities. The Blues and Reds are mirrors of each other’s illusions, and rage follows when illusions die, so watch out. Both factions are ready to blow up the country before they come to terms with what is coming down.

What’s coming down is the fruit of the gross mismanagement of our society since it became clear in the 1970s that we couldn’t keep living the way we do indefinitely — that is, in a 24/7 blue-light-special demolition derby. It’s amazing what you can accomplish with accounting fraud, but in the end it is an affront to reality, and reality has a way of dealing with punks like us. Reality has a magic trick of its own: it can make the mirage of false prosperity evaporate.

That’s exactly what’s going to happen and it will happen because finance is the least grounded, most abstract, of the many systems we depend on. It runs on the sheer faith that parties can trust each other to meet obligations. When that conceit crumbles, and banks can’t trust other banks, credit relations seize up, money vanishes, and stuff stops working. You can’t get any cash out of the ATM. The trucker with a load of avocados won’t make delivery to the supermarket because he knows he won’t be paid.

…click on the above link to read the rest of the article…

End of the U.S. Major Oil Industry Era: Big Trouble At ExxonMobil

November 12, 2016

END OF THE U.S. MAJOR OIL INDUSTRY ERA: Big Trouble At ExxonMobil

The era of the mighty U.S. major oil industry is coming to an end as the country’s largest petroleum company is in big trouble. While ExxonMobil has been the most profitable U.S. oil company in the past, it suffered its worst year on record.

For example, just four years ago, ExxonMobil enjoyed a $45 billion net income profit in 2012. Now compare that to a total $5 billion net income gain for the first three-quarters of 2016. If Exxon continues to report disappointing results for the remainder of the year, its net income will have declined a stunning 85% since 2012.

Actually, the situation at Exxon is much worse if we dig a little deeper.

profitability is much less when we factor in capital expenditures

To understand the real profitability of a company we have to look at its cash flow, or what is known as free cash flow. Free cash flow is calculated by deducting capital expenditures (CAPEX) from the company’s cash from operations. ExxonMobil’s free cash flow declined from $24.4 billion in 2011 to $1 billion for the first nine months of 2016:

steve-1

So, here we can see that Exxon’s free cash flow of $1 billion (2016 YTD) is down 95% from $24.4 billion in 2011. The reason for the rapidly falling free cash flow is due to skyrocketing capital expenditures and falling oil prices. But, this is only part of the picture.

If we include dividend payouts, Exxon’s financial situation drops down another notch. While free cash flow does not include dividend payouts, the money Exxon pays its shareholders must come from its available cash. By including dividend payouts, the company was $8.3 billion in the hole in 2015:

…click on the above link to read the rest of the article…

Why Canada’s Oil Industry May Never Be the Same

April 28, 2016

Why Canada’s Oil Industry May Never Be the Same

Never is a long time. The dictionary definition is, “at no time in the past or future; on no occasion; not ever.” In the volatile oil and gas industry, those who try to look that far into the future and predict anything with certainty are invariably wrong. Here’s hoping.

But it’s not all bad, oil prices are gradually rising because of market physics and investor sentiment. Federal and provincial politicians are softening their opposition to, and have even publicly declared support for, pipelines to tidewater. The worst is over.

However, it is increasingly certain that the future will not be like the past. Previous downturns have been equally devastating but the primary causes eventually reversed themselves; low commodity prices recovered and damaging government policies were rescinded.

This recovery will be different for a variety of reasons which will combine to cap growth, opportunity and profits, even if oil and gas prices spike. The following major changes appear permanent.

Oil Is Destroying the World

“New research shows that the fossil-fuel era could be over in as little as 10 years, if governments commit to the right policy measures… If you think workers are suffering in Alberta now, wait until you see what Canada’s economy looks like if we miss the huge opportunities for jobs and prosperity offered in renewable energy and a truly climate-friendly economy.”

Written by a climate and energy campaigner for the Sierra Club, this appeared on top of page 13 in the April 23 edition of Victoria’s Times Columnist, under the headline, “Pipelines not the pathway to Paris solutions.” B.C.’s views on pipelines are well known.

Whether you or the tens of thousands of laid-off oil workers believe the first paragraph or not, on April 22 at the United Nations in New York, 171 countries signed the Paris climate change agreement negotiated last year.

…click on the above link to read the rest of the article…

The Fed And The Oil Markets On Unsustainable Path As Election Looms

March 18, 2016

The Fed And The Oil Markets On Unsustainable Path As Election Looms

What started the entire correction, in my view, was the carry trade on buying the Euro ahead of more quantitative easing (QE) and the Fed playing games by talking up a recovery and threatening to raise rates. That created a double whammy on a strong U.S. dollar beginning in the summer of 2014 when oil prices peaked.

At the same time, U.S. producers did manage to ramp up output even further in the second half of 2014, at a time of rising inventories. By the first half of 2015 things began to self-correct as inventories began to fall. Oil prices started to make a recovery but reversed as OPEC flooded the market with more oil, which began in late 2014. Meanwhile the nuclear deal with Iran opened up the prospect of a new source of supply, a fact that was overhyped by the media.

Demand remained strong for gasoline despite the weakening global economy, much to the media’s surprise. Inventories rose in absolute terms, but in terms of days of supply, storage remained at much more modest levels, only eclipsing the upper end of the historic five-year range in 2016.

It now appears that the dollar’s strength is starting to reverse, in part due to the perception that the EU central bank implemented a much more aggressive monetary policy easing than expected, leading speculators who went long on the dollar to believe that the trade is over.

…click on the above link to read the rest of the article…

The Terrible Oil News Nobody Noticed

March 18, 2016

The Terrible Oil News Nobody Noticed

A terrible bit of news went unnoticed in the commotion amid the modest rebound in oil prices over the past two weeks.

While every news outlet shouted about Iran and OPEC, a U.S. energy icon quietly announced news that could potentially shatter the industry.

As I’ve explained recently, many oil companies are teetering on the brink of bankruptcy. But news out of Alaska could lead to disaster.

BP Prudhoe Bay Royalty Trust (BPT) – operated by the Alaskan division of oil giant British Petroleum (BP) – sells oil from the Prudhoe Bay oilfield. It just announced a 65% drop in its economic oil reserves.

We’ll explain exactly what that means in a moment… but you can expect the numbers that the other area shale explorers release in the coming weeks will be even worse…

From 1968 to 2015, Prudhoe Bay was the most prolific oilfield in the country, according to the U.S. Energy Information Administration (EIA). Today, Prudhoe Bay ranks third in the U.S. behind Texas’ Eagle Ford and Spraberry Shales.

Prudhoe was so large, three major oil companies – BP, Arco, and Humble Oil – spent $8 billion in 1977 constructing the Trans-Alaska Pipeline System (TAPS) to bring its oil to market. That’s more than $31 billion in today’s dollars.

For a while, that investment paid off. By 1988, the field produced nearly 2 million barrels per day – almost as much oil as the entire state of Texas. From 1985 to 1995, the field produced as much as 25% of the entire U.S. oil output.

In 2013, the North Slope fields still produced more than 479,000 barrels per day, though that accounts for only about 5% of U.S. production. In 2014, more than 12.5 billion barrels of oil remained in the area, according to the Alaska Oil and Gas Commission. But that’s actual barrels… not “economic reserves.”

…click on the above link to read the rest of the article…

Oil Industry Caused 2005 Swarm of California Earthquakes: Newly Published Study

February 9, 2016

Oil Industry Caused 2005 Swarm of California Earthquakes: Newly Published Study

A string of quakes ending on Sept. 22, 2005 struck in Kern County near the southern end of California’s Central Valley – and the new study, published in Geophysical Research Letters, concluded that the odds that those quakes might have occurred by chance were just 3 percent.

Instead, the researchers honed in on a very specific set of culprits: three wastewater injection wells in the Tejon Oil Field. Between 2001 and 2010, the rate of wastewater injection at that oil field quintupled, and up to 95 percent of that wastewater was sent to just that trio of closely-spaced wells, the scientists noted.

The largest of the earthquakes in the swarm measured magnitude 4.6 on the Richter scale meaning that the quakes were relatively small, unlikely to have done any damage to buildings but significant enough to be felt by those in the area.

To be sure, natural earthquakes have always far outnumbered human-caused quakes in California – but the researchers warned that even if the number of industry-caused quakes is small, wastewater injection could be responsible for larger, more dangerous quakes in the future.

“Based on our empirical results, injection-induced earthquakes are expected to contribute marginally to the overall seismicity in California,” the researchers from the California Institute of Technology, University of California, University of Southern California and two French universities, wrote. “However, considering the numerous active faults in California, the seismogenic consequences of even a few induced cases can be devastating.”

The researchers also warned that the number of California quakes tied to oilfield activities has been little-studied compared to other parts of the country and that natural quakes may have “masked” the oil industry’s impacts.

…click on the above link to read the rest of the article…

Only Recession Can Prevent An Oil Price Spike

January 27, 2016

Only Recession Can Prevent An Oil Price Spike

The biggest result from the collapse in oil prices could be a future price spike.

Oil prices at $30 per barrel have put most producers under water. That has led to austere budgets and severe cuts to spending. Wood Mackenzie recently estimated that $380 billion in major oil projects have been delayed or cancelled since. That means that about 27 billion barrels that had been slated for production from those projects will now not be produced.

But more cuts are expected moving forward. “There has been a $1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014,” historian and oil expert Daniel Yergin said at the World Economic Forum in Davos, according to the Telegraph.

The oil industry has long been spending beyond its means. The shale boom was made possible by the massive monetary expansion from the U.S. Federal Reserve since 2009, with near zero interest rates allowing nearly every mom-and-pop driller to access credit. The result was a surge in oil production. Many companies struggled to be profitable before the collapse in crude oil prices. Now most are losing money on every barrel sold.

But the problem is that the market will overcorrect. The $1.8 trillion cutback in spending that Daniel Yergin cites will lead to a shortfall in supply in the coming years. The world needs to replace about 5 percent of total production each year just from natural depletion. That is somewhere around 5 million barrels per day (mb/d) each year in new output.

Moreover, demand is expected to rise. The IEA says that oil demand grew by at a five-year high of 1.8 mb/d in 2015, and while that is expected to slow in 2016, the world will still consume an extra 1.2 mb/d of oil this year. That will continue to rise. Assuming a little more than 1 mb/d each year in new demand growth, the industry will need to supply an additional 7 mb/d by 2020.

…click on the above link to read the rest of the article…

How Oil Industry Lobbyists Played the Long Game to Access a Fuel-Rich Corner of Alaskan Wilderness

December 22, 2015

How Oil Industry Lobbyists Played the Long Game to Access a Fuel-Rich Corner of Alaskan Wilderness

Joseph Sohm / Shutterstock

This story was co-published by ProPublica and Politico Magazine.

From his seat in the small plane flying over the largest remaining swath of American wilderness, Bruce Babbitt thought he could envision the legacy of one of his proudest achievements as Interior Secretary in the Clinton administration.

Babbitt was returning in the summer of 2013 from four sunlit nights in Alaska’s western Arctic, where at one point his camp was nearly overrun by a herd of caribou that split around the tents at the last minute. Now, below him, Babbitt saw an oil field — one carefully built and operated to avoid permanent roads and other scars on the vast expanse of tundra and lakes.

Under the deal he’d negotiated just before leaving Interior in 2000, that would be the only kind of drilling he thought would be allowed in the 23 million acres of the National Petroleum Reserve-Alaska, which, despite its name, is a pristine region home to one of the world’s largest caribou herds and giant flocks of migratory birds. The compromise was fair and, he hoped, enduring — clear-eyed about the need for more domestic oil but resolute in defense of the wilderness.

The deal lasted barely 15 years.

In February, the Obama administration granted the ConocoPhillips oil company the right to drill in the reserve. The Greater Mooses Tooth project, as it is known, upended the protections that Babbitt had engineered, saving the oil company tens of millions and setting what conservationists see as a foreboding precedent.

How ConocoPhillips overcame years of resistance from courts, native Alaskans, environmental groups and several federal agencies is the story of how Washington really works. It is a story that surprised even a veteran of the political machine like Babbitt.

…click on the above link to read the rest of the article…

Oil Megaprojects Won’t Stay On The Shelf For Long

November 3, 2015

Oil Megaprojects Won’t Stay On The Shelf For Long

One casualty of the oil price downturn could be the megaproject.

For years, as conventional oil reserves depleted and became increasingly hard to find, oil companies ventured into far-flung locales to find new sources of production. Extracting oil from these frontier areas required more advanced technology and a lot more capital: Ultra deepwater, Arctic offshore, heavy oil sands, and increasingly, the Lower Tertiary.

Often these megaprojects projects were only the purview of the largest oil companies, as smaller players did not have the resources – financial or technological – to make them work. Meanwhile, smaller drillers, at least in North America, turned to shale, which required less upfront cash and could be turned around on a quick timetable.

The collapse of oil prices, however, could kill off the megaproject. The oil majors are scrambling to cut costs, and large-scale projects with high costs and long time-horizons are not making the cut. A combined $19 billion in write-downs was recorded in the last week of October as the oil industry reported third quarter earnings.

Spending on deepwater exploration is expected to be cut 20 to 25 percent industry-wide, according to Barclays, substantially higher than the 3 to 8 percent cut for exploration on all varieties of fields.

One problem for these large projects is chronic delays and ballooning costs. Around 80 percent of large projects fail to stay on budget and come online at the expected start date, according to Bloomberg. About three-quarters of them have suffered delays, and two-thirds have blown through their original cost expectations.

That could force even the oil majors to start to back away from large-scale oil projects. Royal Dutch Shell recently scrapped its Arctic program and wrote off a costly oil sands asset at Carmon Creek. The completion of Chevron’s Big Foot project in the Gulf of Mexico will be pushed back by a few years because of equipment problems.

…click on the above link to read the rest of the article…

Oil and Gas Industry Publicly Supports Climate Action While Secretly Subverting Process, New Analysis Shows

November 3, 2015

Oil and Gas Industry Publicly Supports Climate Action While Secretly Subverting Process, New Analysis Shows

A new report recently released by InfluenceMap shows a number of oil and gas companies publicly throwing their support behind climate initiatives are simultaneously obstructing those same efforts through lobbying activities.

The report, Big Oil and the Obstruction of Climate Regulations, comes on the heels of the Oil and Gas Climate Initiative, a list of climate measures released by the CEOs of 10 major oil and gas companies including BP, Shell, Statoil and Total.

According to InfluenceMap the initiative is an attempt by leading energy companies to “improve their image in the face of longstanding criticism of their business practices ahead of UN COP21 climate talks in Paris.”

“The big European companies behind the OGCI…will come under ever greater scrutiny, as the distance between the companies’ professed positions and the realities of the lobbying actions of their trade bodies grows ever starker,” InfluenceMap stated in a press release.

The group’s analysis shows a major disconnect between climate rhetoric and action among three key policy strands: carbon tax, emissions trading and greenhouse has emissions regulations.

The findings show companies like Shell and Total publicly support carbon pricing while at the same time support trade organizations that systematically obstruct the legislation’s implementation.

Oil majors BP, Chevron and Exxon also support these lobby groups but spend less time publicly supporting a price on carbon.

Dylan Tanner, executive director of InfluenceMap, said industry is becoming more cautious of public oversight and as a result, has become subtler with its efforts to subvert climate progress.

“Companies like Shell appear to have shifted their direct opposition to climate legislation to certain key trade associations in the wake of increasing scrutiny,” Tanner said.

“Investors and engagers need to be aware that these powerful energy and chemicals-sector trade bodies are financed by, and act on the instruction of, their key members and should thus be regarded as extensions of such corporate-member activity and positions.”

…click on the above link to read the rest of the article…

Risky Shale Oil-by-Rail Expands Despite Lack of Spill Response Preparedness

November 2, 2015

Risky Shale Oil-by-Rail Expands Despite Lack of Spill Response Preparedness

The worst onshore oil spill in United States history was the Kalamazoo River tar sands pipeline spill in 2010 with estimates of one million gallons of oil spilled. In comparison, the oil-by-rail accident in Lac-Megantic, Quebec was 50% bigger.

With the oil-by-rail industry proposing large expansions to West Coast destinations, it is understandable that some local communities are worried about the risks of a spill causing major environmental damage and threatening human health.

While the fiery explosions get the most attention when it comes to oil train accidents, the trains also have resulted in some of the largest oil spills in North America. And that oil is usually ending up in waterways.

In Lac-Megantic, 1.5 million gallons of oil spilled with some of it ending up in the nearby lake and river. In Aliceville, Alabama it was 750,000 gallons that ended up in wetlands. In Mount Carbon, W.Va. it was approximately 400,000 gallons on the banks of the Kanawha River. In Gogama, Ontario ruptured rail tank cars ended up in the water. Just like in Lynchburg, Virginia. And the spill in Galenas, Illinois was noted to pose “imminent and substantial danger” to the Mississippi River.

People trained as first responders to marine oil spills are very clear that the speed of the response is critical for minimizing damage. On the website for the Marine Spill Response Corporation it clearly states, “During an oil spill, time is of the essence!”

Of course, the volatile nature of the Bakken crude oil means that the current recommended approach to dealing with a Bakken oil train that has derailed and is leaking and on fire is to evacuate everyone within a half-mile radius and then let the train burn — sometimes for days.

Meanwhile in January of 2014 the National Transportation Safety Board put out a safety recommendation about the current state of oil response planning for the rail industry that stated:

“oil spill response planning requirements for rail transportation of oil/petroleum products are practically nonexistent compared with other modes of transportation.”

…click on the above link to read the rest of the article…

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profitability is much less when we factor in capital expenditures

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