[phaster]

Last week The Wall Street Journal published a story called Big Oil Companies Struggle to Justify Soaring Project Costs. That story contained a VERY SCARY GRAPHIC that has many people talking:

http://www.investingdaily.com/19358/a-very-scary-graphic/

[Plantagenet]

Peter is right that most people in the MSM and the general public will ignore the significance of the "very scary graphic.' But people who read the Wall Street Journal are mostly pretty smart cookies when it comes to money, and many of them will get that the big oilcos are reaching the end of the string on finding big conventional oil deposits, at the same time that global oil consumption keeps going up, especially in Chindia and the developing countries.

[rollin]

It's tough looking from the outside in, not knowing what the capital expenditures were actually spent on. As the article mentioned, there were some very expensive projects that have not come into production yet. There may have been some poor business moves in there too.

Still, the fact that production or rise in production is falling off is an indicator that increasing production is getting tougher and more expensive. Still the production is going up overall, if slowly. With large companies, they generally do not grow quickly anyway. Of course once the margins are reduced, expensive projects may be canceled or cut back.

I still think the best indicator of peak oil is where and how oil is being obtained. Much like modern man with huge amounts of medical technology to keep him going and having to travel far for special treatments, the oil business is using huge amounts of high tech to find and produce oil in more difficult places. Eventually geologic and location constraints along with some resource constraints will pull down the production numbers.

[sparky]

.
The article make a few good points

-1.... oil investment lag oil price rise by a fair few years
-2.... modern engineering is also costlier , way more bells and whistles
-3.... as the guy point out is that the "good oil "is pretty much gone
which is multiplied with Nbr 2

you can take those three factors as constants
a lot of the upfront costs will make the corporate treasury blanch
while the moderate costs of exploitation with increasing price make it a river of gold

Don't bang the oil companies , they have enough sins on their soul already
they only give us what we demand of them
and it's a tough gig , not for the faint hearted

[Keith_McClary]

It is very scary. And hard to be believe it will be ignored and/or rationalized. But the msm and the gullible public will somehow rise to the occasion. They always do.

The article tries to rationalise it:

There is always a delay between spending on a project, and seeing that spending bear fruit. That delay can be three to five years, or even longer with some of the more complex projects. Recall that oil prices surged from 2005 until 2008, but oil production remained relatively flat during that time. This fueled much speculation that oil production had peaked. But the surge in oil prices spurred new projects, and as those projects came online they began to move the production needle. In the US, this has resulted in five straight years of increasing domestic oil production.

[Pops]

There is always a delay between spending on a project, and seeing that spending bear fruit.

Unless the fruit is too high to make a profit and you quit.

BP Quits Mad Dog (GOM)
Petrobras Quits Lula (subsalt)
Chevron Quits Rosebank (N Sea)
Statoil Quits Bressay (N Sea)
Total Quits Voyager, Sells to Suncor (tar Sands)
Suncor Quits Voyager
Shell Quits Texas
Shell Quits Louisiana (GTL)
Shell Quits Alaska
Shell Quits China
Shell Quits Colorado Shale
Shell Quits Algae
Shell Quits Solar
Everyone Quits Tar Sands

LOL

.

[Keith_McClary]

There is always a delay between spending on a project, and seeing that spending bear fruit.

Unless the fruit is too high to make a profit and you quit.

And the longer the payback time (and associated uncertainty and risk), the higher the ROR your investors will want.

[AndyA]

I'll agree with RR on this one. Without seeing revenues, you miss some important details. The IOC's have been making a lot of money recently, and are reinvesting. I think time will ultimately be the judge here. Some of these investments will take time to bear fruit, but have huge upfront costs, a bit like planting an orchard.

[ROCKMAN]

pstarr - And if you didn't catch it before folks should be aware that the new head knocker at Shell is a downstream guy that replaced the upstream guy. Despite the fact that the refining/marketing guys wouldn’t have a job for the exploration guys there has typically been a lot of friction between the two groups. While the exploration groups may drill the wells they pretty much represent cash outflow. The production departments and market folks generate the cash inflow. So they see such failures as Shell’s multi $billion failed Eagle Ford as just pissing into the wind. Of course they don’t see the eventual cash flow created by successful efforts because they come out of groups further down the assembly line.

OTOH while the refiners/marketing folks tend to make a more steady profit at lower risks their margins tend to be much lower than the explorations groups’ successes. So the hunters tend to resent those gatherers with their “easy” jobs. There’s also another factor: the Shell refining/market groups don’t necessarily need oil from the Shell explorationists to make their profits. A lot of Shell Oil gasoline isn’t made from production made by Shell Oil. There have countless occasions when one Big Oil refiner bought oil from another Big Oil producer over their own company because they got a better price. And there are also times when the Big Oil exploration group is required to sell for less so their refinery/market folks can make the bigger profit. And it can go just the opposite sometimes. It has to do with the complexity of the tax code.

It’s been done in the past and may become more common: Integrated Big Oil may see the advantage of that vertical integration diminishing to the point where those various divisions are completely spun off from each other. As long as Shell Refining and Shell Marketing can get the volume of the product they need at the right price they won’t care if it came from ExxonMobil wells or Valero refinery. BTW in case you weren’t aware refineries don’t make Shell et al gasoline. Refineries make gasoline and then the different additives are mixed in to make it Chevron or whoever gasoline. Which is why you might see an ExxonMobil, Shell or Chevron tank trucks rolling out of someone else’s refinery.

[AndyA]

Another relevant point to bear in mind is that the charts are scaled to 2009. Wasn't there something else happening around that time? The cunning chartist has made the lowest year for investment, as the baseline. Very clever. The more I think about it, the less SCARY this chart becomes.

3.357 trillion barrels of “technically” recoverable oil with shale oil 10% of that total! All that oil and everyone, with the possible exception of Saudi Arabia, is producing flat out. That is over 100 years worth at current consumption rates. Is that a joke or what?

Obviously people with deep pockets are having a crack at recovering that oil. It's not cheap, but 'better oil with a happy heart, than great wealth with vexation.'

[ROCKMAN]

"3.357 trillion barrels of “technically” recoverable oil with shale oil 10% of that total! All that oil and everyone, with the possible exception of Saudi Arabia, is producing flat out. That is over 100 years worth at current consumption rates. Is that a joke or what?"

Again the misinterpretation of in place reserves (whether technically recoverable or commercially recoverable) with production rates. The price of oil has never and wil never been determined by the amount of reserves...proven or otherwise. The price of oil is determined for the most part by the dynamics of demand and supply relationship. And the supply is determined by the potential production rate. It doesn't matter if there are 2 billion bbls or 20 billion bbls of oil in the ground if the max global production rate is 100 million bopd. That rate plus the demand modulated by the ability to pay will determine the price of oil...not "3.357 trillion barrels of technically recoverable oil".

[dissident]

3.357 trillion barrels of “technically” recoverable oil with shale oil 10% of that total! All that oil and everyone, with the possible exception of Saudi Arabia, is producing flat out. That is over 100 years worth at current consumption rates. Is that a joke or what?

Of God not this retarded crap again. It's kerogen not oil. You need to convert it into oil using heat. It takes about one hour at 500 Celsius to cook it and then you have to process what you obtain. You also have to crush the shale oil rock first in order to cook it. The energy expense is at least an order of magnitude more than for tar sands syncrude production.

Anyone who goes around talking about shale oil production from kerogen is a con artist. There is not a single commercial or a functional research pilot production facility on the planet. Shell has recently quit its R&D efforts to set one up after 40 years of trying. None of the oil majors are developing this resource. Exploration costs for kerogen derived oil are at the moment close to zero because it's a manufacturing process nobody is in the process of establishing and not oil extraction.

The change in the management at Shell partly explains why it withdrew from R&D in this area. The money makers lack appreciation for the black hole of funds called research. It's too bad, this R&D is needed more than ever by the fossil fuel industry.

[Shaved Monkey]

There is always a delay between spending on a project, and seeing that spending bear fruit.

Unless the fruit is too high to make a profit and you quit.

BP Quits Mad Dog (GOM)
Petrobras Quits Lula (subsalt)
Chevron Quits Rosebank (N Sea)
Statoil Quits Bressay (N Sea)
Total Quits Voyager, Sells to Suncor (tar Sands)
Suncor Quits Voyager
Shell Quits Texas
Shell Quits Louisiana (GTL)
Shell Quits Alaska
Shell Quits China
Shell Quits Colorado Shale
Shell Quits Algae
Shell Quits Solar
Everyone Quits Tar Sands

LOL

.

Shell Quits Australia too
http://www.abc.net.au/news/2014-01-31/s ... ns/5231278

[rollin]

Why are we so concerned about beating the dying horse that is oil production? Shouldn't we be spending what energy is left on moving toward an oil independent society? Sure, it's nice to have some oil for certain products, but is it worth all this obsessive effort to try and keep an oil dependent transport system going? The system is breaking down, it's not going to be fixed. Trash the old system and move on. The alternative is to come to a halt. Are we so dumb as to not be able to think of anything else or any other way?

This reminds me of when a car starts to get old and eat my wallet. Throwing money at it fixes one problem but in a few weeks it develops another, then another. Junk it before it eats you alive or kills you from failure of a critical part.

[yellowcanoe]

Why are we so concerned about beating the dying horse that is oil production? Shouldn't we be spending what energy is left on moving toward an oil independent society? Sure, it's nice to have some oil for certain products, but is it worth all this obsessive effort to try and keep an oil dependent transport system going? The system is breaking down, it's not going to be fixed. Trash the old system and move on. The alternative is to come to a halt. Are we so dumb as to not be able to think of anything else or any other way?

You are preaching to the choir -- the majority of people on PO understand that BAU is not sustainable. Unfortunately, the majority of society still believe that the current economic problems are temporary and we'll go back to robust 3-4% growth anytime now, oil and gas supplies will last well into the future and we must continue to grow our population. Pretty damn frustrating that the majority, and even many so called "experts" cannot see what should be obvious.

[ROCKMAN]

Rollin – “Junk it before it eats you alive or kills you from failure of a critical part.” And there’s the fundamental problem, eh? You can’t junk that old clunker because you need it to get to work. Without that unsustainable wreck you can’t earn a paycheck. No pay check…no new car. So you have to transition: drive that heap while you save enough money to replace it.

But that’s where we have a problem: folks don’t want to save/spend their money on that transition. We go round and round about all the potential ways to fix the current situation. All it requires is for someone to pay for it. And that’s where the discussion ends.

Great solution: stop spending capex for oil/NG development. And with the certain economic collapse that would lead to exactly where is the money going to come from to build out the alts? So we do a much slower transition…just like we’re doing now. But is that moving along fast enough? I suspect most would say no. So exactly how is the public going to be forced to transition faster? Certainly a huge upset in the oil supply would provide a lot of stimulus. But then we’re back to the problem of the economies not being able to afford the transition.

[Pops]

'xactly ROCK, back when I first started posting here I wondered "how long before the cost of transition is too high?"

Thing is, in the US at least, it is already too late to do anything without a huge debt default because we are not only past growth in real stuff - as opposed to the imaginary paper growth on the FIRE economy - but way in the hole besides. We'll never pay back real debt with imaginary profits derived from traders betting each other how fast the economy will fail.



(the "savings rate" has rebounded a speck since '07 due to large numbers of defaults and foreclosures)

Gail talks about this today - again, and

The economy used to grow by making people wealthier. Now, consumers go further into debt, while their incomes are stagnant or falling. In 1980, a $7 trillion economy included $2 trillion of what City economist and author of Life After Growth Tim Morgan calls "globally marketable output" (GMO) – real wealth, the kind of stuff you can sell to pay your bills.

But then the economy underwent plastic surgery at the hands of quack policy makers. Now, it's unrecognizable. Today, we have a $16 trillion economy. But how much of that is from GMO? Well, about $13 trillion is consumer spending. And various statistical adjustments. Only $3 trillion is what Morgan calls GMO.

That's the real growth of the US economy since 1980 – a piddly, pathetic $33 billion a year. Barely enough to keep up with population increases.

http://www.acting-man.com/?p=28361
H/T to Admin for both those stories on the front page.