trysail
Catch Me Who Can
- Joined
- Nov 8, 2005
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Attendance at this year’s Offshore Technology Conference in Houston was the largest in thirty years reflecting strong global oil prices, a booming domestic shale oil and gas business and rising optimism about foreign exploration. The following observations/commentary are based on meetings with about twenty integrated oil, exploration/production and oilfield service companies:
• Domestic shale exploration continues to boom with focus on such “oily” plays as the TX Eagle Ford, MT/ND Bakken, TX Granite Wash, and CO/WY Niobrara Chalk. Activity would be even stronger but for shortages developing in pressure pumping and proppant capacity. Accordingly, operating costs are rising but not as rapidly as prices for both crude oil and natural gas liquids. Prime beneficiary; Halliburton.
• Foreign shale development will be the next major focus. Although the Paris Basin development has been halted by local environmental opposition, majors and independents are moving quickly to accumulate prospective acreage in North Africa, South Africa, Poland/Hungary, Argentina, Australia and China. We will see a major surge in directional drilling and fracturing business directed to foreign shales as soon as next year. Prime beneficiaries; Halliburton and Schlumberger.
• International service margins remain depressed as companies work-off average three year contracts signed during 2008-2009, a time of low activity and excess capacity. As new contracts are signed in 2012-2013, assuming activity is as strong as currently, margins will rise significantly. Prime beneficiaries; Halliburton, Schlumberger and Baker Hughes.
• Deep offshore drilling outlook improving. Brazil continues to debate whether Petrobras should either attempt to construct 28 new drillships domestically, in yet-to-be built shipyards, or tender for available capacity in the global fleet. Our guess has them seeking about eight rigs in the near future with possible additional requirements booked in 2012. The reasoning is that offshore discoveries need to be delineated as quickly as possible in order to plan costly development projects. This cannot be accomplished effectively by waiting an entire three years for locally built vessels to be delivered versus a lower cost and immediate alternative – the underutilized and available global fleet. Perhaps even more significant are signs that the ultra-deep pre-salt deposits offshore Angola (that were formed simultaneously with Brazil’s Campos Basin before the continents separated) now appears to be every bit as attractive as Brazil’s mammoth reserves. As a result, over six major IOCs are planning exploratory programs in partnership with Sonangol as early as late this year and into 2012. Were there to be discoveries, the news would be very positive for the deep offshore drillers (Noble, Transocean, ENSCO, Seadrill) and the aforementioned major service companies.
• Arctic drilling moving forward. Royal Dutch Shell expects to receive permission soon to initiate drilling on prospective acreage in the Beaufort and Chukchi Seas offshore Alaska. While vigorous opposition continues from environmental lobbies, the possible existence of 25B bbls of oil reserves makes this a politically viable answer for the Obama Administration under pressure to find domestic alternatives to declining production in the lower 48 states. If regulatory approval is received, an initial wildcat well could be spudded before year end. Primary beneficiary; Noble Corp.
• Massive natural gas discovery offshore Israel. The Tamar and Leviathan fields are located 60 miles offshore in 5,000 feet of water. With over 16 TCF of reserves to date, Noble Energy has made the largest such discoveries in over a decade. They will make Israel natural gas self-sufficient, and also supply a prospective LNG facility in Cyprus for export to European markets. Prime beneficiaries; Noble Energy, KBR, and offshore drillers.
• Questionable Saudi Arabia reserves. For over three decades, Saudi Aramco has used proven reserves of about 265B bbls despite producing over 85B bbls during that time frame. I have questioned the accuracy of this number since the 1980s and now find additional evidence that Saudi reserves may be significantly overstated. Recent comments by two of their largest service companies, and their decision to develop the huge, ultra-low quality Manifa field, all suggest that natural decline rates in legacy oil fields are accelerating, making it increasingly difficult to maintain 9MM bpd much less reach their promised 12MM bpd capacity. Prime beneficiaries; all international service companies. Primary implication; eventual higher global oil prices.
• Markets for domestic shale gas. As new discoveries in the PA Marcellus and TX Eagle Ford add to surplus capacity from the TX Barnett, AR Fayetteville and LA Haynesville shales, new markets are developing rapidly. The first will be to replace coal as fuel for eastern power plants, a market that could add 5B cfd (cubic feet per day) by 2020 to current 64B cfd production. Companies are now also studying whether to convert three LNG regasification facilities (Cove Point MD, Cheniere LA and Freeport TX) to liquefaction plants and export (rather than import) LNG to world markets. Potential beneficiaries; E&Ps with large N/G reserves, pipelines, and engineering/construction industry.
• New technologies introduced at OTC. One of the most interesting was Halliburton’s new Clean Wave Water Treatment Service that won the new technology award. Based on electrocoagulation, it removes suspended solids, oil, other insolubles and bacteria from produced water after a well has been fractured. The water is then totally reusable for further drilling and completions while greatly reducing the need to send waste water to treatment plants or to use additional fresh water in the drilling/completion process. This is a positive response to many environmental opponents of gas shale drilling and, upon becoming widely available, should greatly reduce incidents of stream pollution.
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