The Oil Drum

47 comments on A Simpler Way to Calculate Global Oil Reserves?

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oilmanbob on September 13, 2006 - 7:03pm

Memmel, I know you have explained the major's plans, but that IMHO isn't the way its going to work out. In order for stategic planning to be effective, you first must have a paln and people capable of implementing it. I don't think that most of their actions can be explained by strategic planning. They are giant beaurocratic organisations and reactive in the extreme-their strategic planning seldom goes beyond an annual report . The majors really don't care that much about production-it is just a source of supply for their refineries and gas stations. Petrochemicals and gas sales are where the money comes in the house, not the extractive side of the operation. Lee Raymond's $400 million dollar retirement check was based on how well he kept stock prices up for the Board of Directors, not the exploration success of Exxon, which was lousy during his presidency.
Mark my words, in ten years you will see the majors mostly out of production of oil because they can't make any money at the game. All it does is draw flack from environmentalists and from people enraged at ",windfall profits" , and they will see that they will be much better off as refiner/marketers such as Valero. So when flush production collapses you will see them dump the fields, shit on all their E&P employees and tell the touts on Wallstreet that they don't have to worry about decining reserve base because they don't have reserves. And I'll sign my name to that prediction.

Bob Ebersole

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memmel on September 13, 2006 - 8:02pm

I don't disagree with most of what your saying.

I'm just saying that they expect the NCO to invite them back to produce the old and difficult fields.

Tell me what you think the NCO's will do in the scenrio I've outlined.

Oil price increases 10%
Production declines 10%
Internal usage increases 5%.

The are making less money every year and they don't have the expertise to extract the older fields like the majors do.

In exchange the majors get to book reserves in these countries.

Give me your opinion of how the NCO will operate refute my claim that they will be at best revenue neutral post peak for example. You have not addressed my prime example Libya.

So please give me your position on the NCO's not just the Majors.

Now once this scenario plays out I agree there is a saying that goes like no icebox company ever manufactured refrigerators. The oil majors will not be players in alternative energy. But because I see that the NCO's will get desperate I think your missing a step.

Mike

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oilmanbob on September 14, 2006 - 1:07am

I'm certain that you are correct that the national oil companies will get desperate. But, skilled professionals inthe oil patch are what they need, not Exxon, Chevron, Shell and BP. Even the majors use mostly service companies for their expertise in oil exploration and production, companies like Baker Hughes and Corelabs and Schlumberger..And many NOCs already use Americans for oilfield workers-look at Aramco. The techniques aren't state secrets. Englishmen,Norwegians and those ubiquitous Scots learned tertiary production in the North Sea, and they are for hire is the production declines. Of course what I say is speculation, but I forsee the majors selling off their fields and just keeping the refining and marketing. The production is becoming too much of a liability for what will be soon diminishing rewards. They will blame unfair taxes like are fixing to be passed in California, they'll blame environmentalists for not letting them drill.
Exxon and Chevron can't make money on 9 barrel a day wells,the median production in Texas, and they won't. They'll lay off the exploraationists and retire the production engineers, and the NOCs and service companies will hire them. This is what they did onshore in Texas and Louisiana, they will do it again because they will come to percieve that that will make more money. And they will be too controversial to get NOC contracts.
As for Libia, I'm pretty sure that it was the treat of invasion that made Gadafi come to Jesus. The international oil companies were already buying their products for use in Europe. American companies ignore US sanctions at will as they suffer no penalties.

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memmel on September 14, 2006 - 3:17am

KSA can pull off hiring the small companies as contractors since they have the infrastructure for building big project.

I think that the rework project needed to try to keep production rates up will be large and complex. I don't see most NOC capable of pulling them off. You have to consider that when depletion finally sets in most of them will be hit by surpise. I'm sure Pemex even with the warning that we know that have been given is not seriously working on how to keep the oil flow up if Cantrell tanks. I suspect that many of the NOC's are more delusional then Pemex about their production capabilities.

I think your underestimating the pressure that the NOC will be under to keep or even increase their oil revenue.

I'm not convinced that simply taking the approach of business as usual and hiring in foreign contractors is going to solve the problems there facing.

Now I do believe the major's are capable of keeping production rates up in depleted fields at the expense of total recovery and with steeper declines later in production.

Now if they don't bring in the majors the NOC's could very well be facing production declines steep then 10% if the situation in the fields gets beyond their ability to handle with contractors. Realize that after the US peaked the drilling campaign was massive and probably won't be repeated even in the situation I'm talking about.

I suspect we will soon find out.

If I'm right then I'd expect the initial drops in production rates to be fairly gentle with declines say in the 2-5% range but say going rapidly to the double digits 10-20% several years later. Consider if they try to put together a number of contractors for a large project they will be faced with a lot of issues. The contractors will be unwilling to sign long term deals since the price the can charge will be skyrocketing. I can foresee numerous delays and problem as contracts pressure for higher prices or leave for greener pastures. The reason I think the major can pull it off is they will have the backing of the western governments to ensure that the projects are kept on schedule. Politics will play a big role in ensuring the success of NOC projects that accept the help of the majors.

If your right then we will probably see initial declines say in the 5-10% range moving fairly quickly higher.
I do see in this case that internal political issues could become explosive. So I'm not convinced.