[misterno]

http://finance.yahoo.com/news/exxon-che ... 00238.html

I am just shocked to see costs going up in double digits

I wonder what the reason is.

[John_A]

http://finance.yahoo.com/news/exxon-chevron-miss-u-oil-022000238.html

I am just shocked to see costs going up in double digits

I wonder what the reason is.

White elephant hunters require the profitability of white elephant hide sales to carry the relatively large size of their overhead.

Whereas weasel hunters tend to be lean and mean, don't have as much overhead, and can live off the proceeds from weasel pelts which are much less valuable than white elephant hide.

The local saloon sells whiskey to both weasel and white elephant hunters at a price based on the level of activity, obviously if there are many hunters demanding booze, booze is more expensive because the saloons all have plenty of business and can charge whatever they wish. If there aren't many hunters around with cash in their pockets, then the price for whiskey at any saloon better be competitive with the other saloons in town.

[ROCKMAN]

m – “Big Oil's shrinking output contrasts with global oil production, which has risen 12% over the last decade, according to the U.S. Energy Information Administration.” If you weren’t aware Big Oil pretty much abandoned much of their efforts in the US many years ago to focus on foreign projects for which they were much better suited. But on a global level all of US Big Oil represents a rather small contingent. The vast majority of foreign oil reserves are controlled by NOC’s and not XOM et al. The major effort to expand Big Oil’s reserve base in the US has been by acquiring smaller companies and not by doing so with the drill bit.

“Chevron's costs to produce a barrel of oil and its equivalent in natural gas have jumped 41% since 2010, while Exxon's have climbed 23.5% over that period.”: Always difficult to interpret such statements. Do they mean the cost to produce their existing wells has risen by that much or is that the cost to find new production? LOE (Lease Operating Expense) does tend to increase as a field gets older but not by that magnitude. I suspect they are referring to the cost to find new reserves. And the reason for that is more likely to be a result of finding smaller accumulations as opposed to higher drilling costs.

[ROCKMAN]

pstarr - Actually, with respect to stock growth, Big Oil is much more vulnerable than Little Oil. XOM produces so much oil every year typically it’s physically impossible for them to drill enough wells to replace their reserves. Several years ago when XOM bought XTO that acquisition represented 88% of the reserve replacement they achieved that year. A small public company with less production can drill a bunch of shale wells and replace their production thus keeping Wall Street happy. There are thousands of times as many shale wells to drill as there 100+ million bbl discoveries to be made in the Deep Water trends.

[ROCKMAN]

pstarr - I'm the last person you should ask about the stock market but I think their size and stability (along with some decent dividends in these low interest saving rates these days) keeps the low risk players holding on. For the last 5 or 6 years they’ve been bouncing between $65 and $85 and now appear to be at a peak around $90. Might not take much of a bump in the road to knock them down 25% or so as happened back in 2010. It’s not so much predicting what XOM will do but what shareholders might do depending on changing circumstances. As usual a company's stock doesn't sell for what is worth but what folks are willing to pay for it.

[Pops]

from Matt @ crudeoilpeak


http://crudeoilpeak.info/international- ... -by-2-1-pa

[Graeme]

Despite boom, higher costs push Big Oil into slump

New troves of oil have been found all over the globe, and oil companies are taking in around $100 for every barrel they produce. But these seemingly prosperous conditions aren't doing much for Big Oil: Profit and production at the world's largest oil companies are slumping badly.

Exxon Mobil, Shell and BP all posted disappointing earnings this week. Chevron is expected to post a profit decline Friday. All of them face the same problem: The cost to get newfound oil from remote locations and tightly packed rock is high and rising. And it takes years and billions of dollars to get big new production projects up and running.

The higher extraction costs could translate to higher oil and gasoline prices for consumers.

Strong production growth at an oil company can offset higher operating costs, "but when production is flat or declining it's a big hit," says Brian Youngberg, an analyst at Edward Jones. "Even though oil prices are $100 or higher, the returns on investment aren't what they used to be."

The new oil being found and produced is in ultra-deep ocean waters, in sands that must be heated to release the hydrocarbons, or trapped in shale or other tight rock that requires constant drilling to keep production steady.

That makes this new oil far more expensive to get out of the ground than what's known as conventional oil — large pools of oil and gas in relatively easy-to-drill locations. Those reserves have always been hard to find, but now they are all but gone outside of the Middle East.

David Vaucher, who tracks oil production operating costs at IHS CERA, says oilfield operation costs are now at a record high. "The fields are more remote and the resource conditions are more extreme," he says.

New oil projects in the U.S. and Canada, where production is growing faster than anywhere in the world, require high oil prices to be profitable, Vaucher says.

In order to make an industry average return, a new production project in the Canadian oil sands requires a price of $81 per barrel. For an onshore U.S. field, it's $70 per barrel, but it ranges from $45 to $95 per barrel, depending on the rate of oil flow. In the Gulf of Mexico, it's $63. In the Middle East, just $23 per barrel.

yahoo

[misterno]

me thinks at some point, decline in big oil companies' oil production will effect world oil production which will raise oil prices.

Thus the equilibrium and comeback incentives for big oil companies to produce more.

But the ROI will decline IMHO every year going fwd IMHO. This is because the rise in oil prices mean the cost gap between renewables and crude is shrinking and we will see more migration to solar/ethanol/biodiesel/LNG/CNG in the future which is crrently underway.

Reporting from Houston @100 Fahrenhiet

[ROCKMAN]

m - "Thus the equilibrium and comeback incentives for big oil companies to produce more." You mean more incentive then they have today? Big Oil has never lacked the incentive to develop oil/NG reserves. What they lacked at times was the financial motivation to develop what was available to them. Now they have a big financial stick given the current oil price. yet who is adding most of the new oil production in the US? How many articles have you seen talking about ExxonMobil or Chevron activity in the Bakken or Eagle ford Shale? With the exception of some Deep Water activity Big Oil ceased being a major player in the US decades ago. And the last time I saw the stat internationally all of Big Oil combined only produces about 17% of global production.

Regardless of where prices go Big Oil won't be the main attraction. IMHO it will be the NOC's and China internationally and Little Oil in the US. ExxonMobil isn't going to save us. They are barely able to help just themselves these days.

[Plantagenet]

Higher Oil Production costs are bad news for the oil majors like Shell and Exxon but its good news for companies like Schlumberger and Halliburton that get paid to help produce oil.


Yippee!

[ROCKMAN]

P - excellent point. Many folks don't realize the huge wealth transfer that has been happening between operators and the service industry in addition to the transfer to producers. Not sure what it is now but at one time almost $2 billion per month was being paid to the service companies in the Eagle Ford trend alone.

I just mentioned I'm bringing on a new oil well next week...good for me. And I gave the service companies $2.2 million to the service companies...very good for them. And two months ago me and some partner companies spent $19 million drilling a dry hole...bad for us. And the service companies made $19 million...very good for them.

[Keith_McClary]

P - excellent point. Many folks don't realize the huge wealth transfer that has been happening between operators and the service industry in addition to the transfer to producers.

This results in more jobs, so it is hyped as a benefit for the economy.

I tried to find some sort of numbers on jobs per barrel (including service industry and their suppliers) but came up dry.

[ROCKMAN]

Keith - more jobs is good but it still hinges on a lot of wealth transfer as much as creating new wealth. The companies are transferring $trillions to other companies and their employees. But those $trillions are being pulled from consumers including companies that could be using some of those monies to expand and hire more employees.

The big drain for the US is how much of that capital is being shipped out of the country to the exporters. There is something of a trade off in that we add value to our economy by utilizing those imports. But it seems like countries like China and India are getting a bigger bang for the buck. Which, as westexas points out, may explain why oil prices are staying so high. Those prices haven't crippled the US economy but the obviously aren't helping the recover effort. It doesn't seem as though the boom in energy sector jobs have offset loses elsewhere.

[TheDude]

Since when does anything onshore cost more than GOM? They must mean shallow water versus something with miles of MD and a couple of dozen frac stages.

[ROCKMAN]

Dude - couldn't find that statement but in general you're correct. But I just drilled a deep barge job onshore S La that was a $19 million dry hole. A shelf well off a platform might run $10 million. Of course a "cheap" Deep Water would run $50+ million. Frac'd shale wells are running $4 to $12 million.

[TheDude]

It was in Graeme's linked story:

In order to make an industry average return, a new production project in the Canadian oil sands requires a price of $81 per barrel. For an onshore U.S. field, it's $70 per barrel, but it ranges from $45 to $95 per barrel, depending on the rate of oil flow. In the Gulf of Mexico, it's $63. In the Middle East, just $23 per barrel.

Drilling off an existing platform, I can see how that'd be relatively cheap. Maybe that's what these figures are about.

[Plantagenet]

It doesn't seem as though the boom in energy sector jobs have offset loses elsewhere.

When you drill into the BLS data, over half the jobs in the whole US are being created in Texas.

When you drill into US manufacturing data, a huge amount of factory activity in the US consists of manufacturing pipe for the thousands of wells being drilled in oil shales in Texas and North Dakota.

When you drill into US GDP data, a large part of the car sales that are buoying up GM right now are big honking pick up trucks being sold to oil services companies and their oilfield workers in Texas and North Dakota.


eagle-ford-shale-schlumberger-truck

[Keith_McClary]

As we get into the high-hanging fruit it takes more time to pick a basket, plus other workers are employed making ladders


The result is that a larger percentage of the workforce is required to produce the same amount of fruit (and less are available to produce other things).

I think the same must be true of O&G. I've been looking for the numbers.