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320 comments on DrumBeat: February 22, 2008

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olepossom on February 22, 2008 - 9:52am Permalink | Subthread | Comments top

Shell's comments should be taken as confirmation that (1) peak discovery was long ago, and they can't hide it anymore and (2) the IOC's should be preparing to wind up and pay out like royalty trusts. I love the quote that Shell should be allowed to include ounconventional oil that its engineers haven't yet figured out how to tap. I am going across the street to my bank for a loan, pledging as collateral money i haven't yet figured out how to earn.

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elwoodelmore on February 22, 2008 - 10:03am Permalink | Subthread | Parent | Comments top

i don't see including tar sands in the reserves as the big problem, as i understand it, the process is proven economical. calling it oil is ?-able.
shell is apparently asking investor's to buy snake oil(shale oil) as well.

beware slippery slope ahead.

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olepossom on February 22, 2008 - 10:13am Permalink | Subthread | Parent | Comments top

Shell's oil sands operations are less marginal than the new comers, but more marginal than those of Syncrude, which is already built. Allowing them to book reserves which are uneconomic at oil prices below $150/bbl, or which require nuclear power after the natural gas runs out, is just another signal of where things are going.

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Round Tripper on February 22, 2008 - 10:39am Permalink | Subthread | Parent | Comments top

This is inevitable, right? As Oil companies re-position themselves as energy companies their portfolios will increasingly include far out stuff. The regulators and the markets will need to adjust.

It's also highly probable that more of these far out (and low EROEI) sources are going to be tapped, no matter the societal costs to keep the energy flowing.

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WNC Observer on February 22, 2008 - 11:06am Permalink | Subthread | Parent | Comments top

Oh, I think they are preparing the groundwork for one last big push offshore. They know that when the lines at the gas pumps get long enough, a full tank cost triple digits, and the body bags are coming back from the middle east by the hundreds daily, drilling offshore is going to start looking a lot less objectionable to a lot more people.

The end game for this might even include underwater platforms deep offshore, serviced by submarines. This will be when oil is in the high triple digits or maybe even quadruple digits, of course, and even then they won't be able to afford much of such stuff. But it might be in the final chapter.

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Durandal on February 22, 2008 - 12:03pm Permalink | Subthread | Parent | Comments top

That's when I hope that we can make the big push towards different methods of transportation, living locations, etc. I've become spoiled walking to work every day, and I honestly never want to have a daily commute ever again that involves driving.

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TechGuy on February 22, 2008 - 1:29pm Permalink | Subthread | Parent | Comments top

Oh, I think they are preparing the groundwork for one last big push offshore. They know that when the lines at the gas pumps get long enough, a full tank cost triple digits, and the body bags are coming back from the middle east by the hundreds daily, drilling offshore is going to start looking a lot less objectionable to a lot more people

I hope so. If They don't start work on these projects soon, they'll likely never get done because am economic collapse or worse. It takes considerable capital and engineer to tap these resources. If the dollar tanks, we won't be able to afford to import steel, critical equipment and skilled workers necessary to for these projects. And there will be no energy available either.

Considering whats happening with credit, its probably already too late. Credit is drying up faster than acetone on a hot sunny day. Even Multinational Oil companies need access to credit to start up large scale offshore drilling projects.

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john15 on February 22, 2008 - 3:29pm Permalink | Subthread | Parent | Comments top

techguy- The oil companies will be the one's with the money to start these projects. when the dollar tanks the prices of oil will go up as it has been. the oil companies will be rich as well an oil company.

Exxon shatters profit records
Oil giant makes corporate history by booking $11.7 billion in quarterly profit; earns $1,300 a second in 2007.

http://money.cnn.com/2008/02/01/news/companies/exxon_earnings/

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TechGuy on February 23, 2008 - 6:38pm Permalink | Subthread | Parent | Comments top

Wait a few years after they deplete their reserves and the cash flow disapears.

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woodychuck on February 22, 2008 - 1:10pm Permalink | Subthread | Parent | Comments top

The IOC's, and every other producer, who is responsible for actual operations of producing oil, gas, or geothermal wells, are far different from any royalty analogy. When you wind down the operations, you are just as ressponsible for environmental concerns as you are during the operating life of whatever you are producing. And, of course, that applies to coal, tar sands, and oil shales as well. As an operator, I have to be ever mindful of the impacts I make. I have a very environmetally conscious friend who is also an operator and has been close to getting out of the business because of those problems, and probably would if he, and myself as well, hadn't seen what happens if someone who is not environmentally sensitive and responsible is operating oil and gas wells. But the plugging and clean-up after the party is over are real and are not included in any valuation I have ever seen for any publicly held company. I am sure engineers put in something to account for the end-game or final solution to production problems, and I doubt that any of the majors have made proper provision for that in their financial statements.

Sorry for the ramble, but I do think considering this is important.

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karlof1 on February 22, 2008 - 2:08pm Permalink | Subthread | Parent | Comments top

"But the plugging and clean-up after the party is over are real and are not included in any valuation I have ever seen for any publicly held company. I am sure engineers put in something to account for the end-game or final solution to production problems, and I doubt that any of the majors have made proper provision for that in their financial statements."

If this is true, then those companies are opening themselves up to shareholder lawsuits for not accurately detailing the risks involved in doing business.

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DaveMart on February 22, 2008 - 2:13pm Permalink | Subthread | Parent | Comments top

North sea rigs have to be costed for disassembly, I believe, and nuclear plant costs have a built-in charge in their electric rates - around £0.05MW, form memory.

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Moneyman on February 22, 2008 - 2:41pm Permalink | Subthread | Parent | Comments top

I can assure you that all IOC's operating under US GAAP have liabilities on their books for the plugging and environmental remediation for every single well they operate.

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woodychuck on February 22, 2008 - 5:48pm Permalink | Subthread | Parent | Comments top

Moneyman, I am a former CPA, and worked with one of the then "Big 8", and never saw anything on any financial statement reflecting any future contingencies like P&A costs. I owned and operated my own firm, with no partners and a specialty in oil and gas for 17 years, selling out in about 1990. I do not profess to be an expert in SEC-level accounting standards today, but do read financial statements before I buy any stocks, and have never seen any footnote or other explanation or anticipation of any such future liability such as I have referred to. In fact, I would be interested in knowing just where that liability might be reflected. You certainly do not book anything when you drill a well, although I can see how you might when you buy a project. Any info you could provide me would be greatly appreciated.

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Moneyman on February 23, 2008 - 5:09pm Permalink | Subthread | Parent | Comments top

It's been a couple years since I was directly involved....I beleive FASB 143 dictates the process...this is only public companies. Basically, you record the present value of the future liability. A few years ago, it ran $25-40k tp P&A a well in west Texas. Discounted 10-20 years.....there probably isn't much to see. But it is recorded when the well is drilled, or at least in the same quarter. As for where they hide it on the balance sheet.... it will probably be tucked into "other" liabilities. The bottom line is, public companies are not hiding massive liabilities from investors.... they are accounting for them as mandated. From an investors POV, it's not something that warrants too much attention. Even a poor well will pull in that kind of cash flow in a month.

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MUDLOGGER on February 22, 2008 - 6:12pm Permalink | Subthread | Parent | Comments top

Old, second hand platforms are pretty much like old, second hand cars.

You want to make sure you are the second to last owner.

Or you end up stuck with the drayage costs to the breakers yard.

Personally?

I would just topple them, that they may then form reefs and bio-diverse marine habitats. And put a bouy on top to warn shipping.

But, as usual, the wierd-beards are against this (yawn)

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DIYer on February 22, 2008 - 8:05pm Permalink | Subthread | Parent | Comments top

I agree with Mudlogger. Let 'em be interesting reefs.

But this is my only, and it's a huge one, objection to the proposals to ramp-up fission power. By the time the last owner takes charge of the average pile of non-serviceable fission products, the accountants will have borrowed against those clean-up accounts, and either 1) there won't be anything in the piggybank; 2) inflation will have reduced the account to a trifle; or 3) both. How's the cleanup at TMI coming, by the way?

From WikiPedia:

The damaged and deactivated TMI-2 remained under GPUN ownership until 2001, when GPUN was acquired and absorbed by First Energy Corporation. First Energy continues to own TMI-2, but has subcontracted the maintenance and management of the site to AmerGen Energy from 2001-2003, and Exelon Nuclear from 2003-present.

People talk about a million, or a thousand, years into the future for fission products but I'd say about fifty is plenty for something to be forgotten (but not gone in this case). There are plenty of other really big expensive messes going un-cleaned-up these days (like Chernobyl?). And as we slide down the backslope, there will be even less enthusiasm for such work.

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NZSanctuary on February 23, 2008 - 12:51am Permalink | Subthread | Parent | Comments top

Mining and nuclear companies, like many other companies dealing in toxic waste, have always taken short cuts with safetly and clean up to save money. More widespread financial difficulty will only exacerbate this...

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320 comments on DrumBeat: February 22, 2008

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