From an Insider: Rig Prices, Rig Depth, and How to Get a Job
Posted by Prof. Goose on March 31, 2006 - 1:54am
Topic: Supply/Production
Tags: deepwater, gulf of mexico, mexico, oil, oil prices, oil rig, oil services, peak oil, pemex, rig, rig count, texas [list all tags]
One of our oil industry insiders has sent us some interesting data on rig rates, well type/depth changes, and more on the oil situation in the GOM, as well as how the industry in Texas and the GOM is staffing its rigs. Lots of interesting stuff under the fold.
First, here's some combined corporate data (from 2 companies) that our insider has sent us. It shows how we are not only drilling more wells as fast as we can, but they are getting deeper, which in turn means more complicated and expensive. (Click on plots to expand)
Some snippets from my email with our insider (who, you'll have to trust me on this, knows his stuff):
Some snippets from my email with our insider (who, you'll have to trust me on this, knows his stuff):
If you don't speak Spanish, it's hard to get work on land rigs in Texas. Drilling contractors have hired absolutely anyone who had rig experience, and literally thousands of Mexican roughnecks and especially drillers have taken jobs at rates well below what an American would cost. Pemex is having trouble staffing their rigs due to the boom here, although this isn't public knowledge.
Someone who works for Pemex has said they have a large backlog of undrilled wells due to a manpower shortage at the rig sites, especially those near Reynosa and along their border with the US.
Pemex is also having trouble securing steel pipe (they used to get it from Korea) due to Chinese demand and their (Chinese) willingness to pay more than double what the Mexicans originally contracted for.
Several large Pemex pipe shipments have been "delayed due to routine plant maintenance", but when they (Pemex buyers) visited the steel rolling plant, there was no evidence of their order in sight. There was, however, an order even bigger than theirs going directly to China, of the same size and specifications. This has apparently happened multiple times in 2005, hampering them in their drilling efforts.
Friends have been told point blank by a rig supervisor (with a Spanish accent) that he could hire two experienced Mexicans for the price of one untrained American. I am sending those friends to offshore contractors now. Offshore, you either speak some form of English (Mississippi stumpjumper or Louisianan or Texan) or you don't work.
I thought it was important to relay what our open borders are doing to Texans and to the oil drilling business on BOTH sides of the border. Again, so many things are rearing their ugly heads around the country it's hard to keep track of them!!
Your comments about steel pipe preferentially going to China before us sounds like China is trying to purposely outbid us for crucial materials-- using economic leverage to force us into massive energy shortages.
I hope that any oilrig workers are legally documented and federally approved, no matter where they work. The dangers of drilling work requires full protection for the workers.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Funny how Americans argue for "free markets" yet when they get outbid in those same free markets then the outcome is due to a vast conspiracy.
Who do you think gave the Chinese all those US dollars they are now using to out bid you? It was the Walmart Shoppers Put 3 Televisions In Every Room So China Can Outbid Us on Drillstring Conspiracy or WSP3TIERSCCOUODC for short. Must be a terrorist organization.
Some to come to a quote shop near you:
We would need more clarification about the original quotes in Prof. Goose's posting: but it reads to me that the Chinese somehow got their orders preferentially moved ahead. I am no legal expert, but that sure doesn't sound kosher to me. How did you read the original quotes? Please restate in your own words.
I think you semantically misread my intent on Chinese economic leverage. If you recall my earlier posts on Powerdown and biosolar habitats, I am all in favor of choking production in the US to shift funding from detritovores to biosolars, as long as careful controls are implemented. If the Chinese, using economic leverage, legitimately outbid us for crucial materials, so be it. When prices start to rise here in the US, the pioneering people will be ready to join Richard Rainwater in building biosolar habitats, the oil companies will still profit, and billions of dollars will finally start flowing into a proper Powerdown. If the Hubbert decline is steep and ASPO's Depletion Protocols are going nowhere, then the US must assert it own version in the national interest to minimize future internal strife.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Drill pipe is the small volume end of oilfield tubulars. It is only replaced when it is completely worn out, and so has a relatively long life.
CASING and liner runs are the big dollar and volume items, as they are used in EVERY well and LEFT IN THE GROUND as part of the well construction process. Thus they are consumables, whereas drill pipe is reusable.
http://thefraserdomain.typepad.com/energy/2006/04/peak_oil_a_shat.html
"As Fort McMurray's population has increased to 61,000, from 33,000 in 1996, housing has become in such short supply that the average mobile home now sells for $277,000 and people are renting couches for $500 a month
The crowding and labor shortages pushed Canadian Natural Resources to build a jet runway long enough to accommodate Boeing 737s to allow workers to commute to their giant new Horizon project. Shell Canada has built a giant pipeline to transport diluted oil sand bitumen hundreds of miles south to a new upgrading plant outside Edmonton. "
I don't think too many illegal burger flippers can afford to fly in / fly out - or pay $500 a month to sleep on a couch...
That isn't legal. So, don't deal with the steel companies that aren't upholding their contracts.
Hey, Mexico may have done the same thing to the Koreans, for all I know. Maybe Mexico contracted to sell oil to Korea at 50$ a barrel, and then sold it to the Chinese for 60$ a barrel. Turnabout is fair play.
Interestingly, the U.S. International Trade Commission found the Chinese to be involved in illegal dumping and recommended tariffs. However, Bush refused to sign off on the ITCs recommendation. Layoffs have resulted and the largest mill's owners put its plants up for sale. Guess who came in as new owners? Carlyle Group.
There is outrage from both labor and management against Bush. (The quote in the local paper--"What is the reason for the layoffs? Bush, Bush, Bush.) Of course, the widespread opinion here is the whole reason Bush didn't sign off on the ITC's recommendation was to set up a sweetheart deal for the Carlyle Group.
Your comments about steel pipe preferentially going to China before us sounds like China is trying to purposely outbid us for crucial materials-- using economic leverage to force us into massive energy shortages.
Why would the Chinese even have an interest in causing a deliberate shortage of crucial materials such as steel pipes? If costs go up for oil companies in the US to secure adequate oil supplies, then crude oil prices go up. The US is not going to stop consuming oil just because it went up by 10 $ a barrel. Instead, it will cause a lot of pain in China and to the Chinese govt. Increasing gas shortages and the spectre of public unrest. Whatever the crude oil price is at the given point, the Americans pay that. And the Chinese too. The Chinese would rather see oil for 30 $ a barrel rather than 66.5 $. The Chinese consume a lot of oil too. The cost of higher crude negatively affects the Chinese by diverting money from economic projects to the middle east.
No more than the Americans have been 'out to get' others over the years. Simple observation of "what works" to obtain resources w/o a gun barrel.
Can you please keep these conspiracy theories to yourself?
Why label it a conspiracy? Simple economic arguments will do. The Chinese have a pile of American dollars and are willing to spend 'em. More willing than the Mexicans or the Americans.
BUT
So what if it IS a conspiracy? How does that change the reality? Or the shafting of the non-insider parcipatants?
"Purposely outbid us for crucial materials", thats what I would call a market economy.
"Using economic leverage to force us into massive energy shortages", you think their doing this to hurt you? Why would they hurt their customers.
It also suggests that if the "guest worker" program is rejected then trained labour would not be available to the drilling contractors. This would decrease the number of working rigs. Since the industry appears to be operating at capacity just to maintain current NG production levels the outcome would be a drop in production.
Even Perot would think that was weird ...
Yeah, and the next sucking sound we will hear are the upcoming hurricanes to tear up what is left of the oil infrastructure in the GoM.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Folks who are not industry insiders somethimes get these two opposing forces confused. I've done it myself.
I hope there are no illegal roughnecks! If there is, the companies should be heavily, heavily fined!
It seems that two races to the bottom are occuring worldwide: one is decreasing net energy, the other is worldwide wages decreasing to bare survival levels. Hopefully, they are not economically linked, but I fear they are. In that is not the case, I hope somehow Chinese wages come up faster than ours ratchet down for doing the same kind of work. It is really starting to get ugly out there.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
What we are seeing from this is the fast maturing of GOM as a hole. I'd like also to remember the bit from `We Were Warned' were exploratory drilling was shown already at 6000 feet deep (+/- 1850 meters [funny that's a nautical mile]). It'll get increasingly harder to maintain the current rates of production in GOM.
These news of hands and resource shortages on Pemex are also very important, especially after the news of Canterell. Mexico is heading to that brick wall really fast.
As for the pipes acquired by China, it's not suprising. Don't they do the same with cement, copper, steel, etc.?
The gray line is oil price, the red line is global oil well rigs. We are simply not finding the pools of oil to be found with drilling now and getting vastly lower return on investment. When you consider that global discoveries peaked in about 1962, we are at a vastly different place on the discoveries curve here in 2006 than we were at in 1976. There just isn't that much left to be found and drilled. And a lot of the new drilling now is punching holes like crazy into old, mature reservoirs to grab the remaining primary recovery faster (putting the production profile more into an "off the cliff" pattern at the end of primary recovery). Having said that, however, there is little danger of a giant wave of new supply causing a bust to this current boom, and the oil price climb this time is likely to be more or less permanent. So this drilling boom has the legs to carry on and on. I would like to see a 40 year chart of total wells broken down into exploratory wells, # of discoveries per exploratory well, and inflation adjusted cost per well. This would likely show a rapidly widening divergence between # of wells/cost per well and discoveries per well now as compared to the 70s drilling boom.
I've spent enough time in Texas to know how common those views are among the Anglo majority. People in that part of the country are accustomed to expressing racist views openly among their like-minded friends, but IMO it has no place on this message board.
May I suggest that you have just put into a catagory that "Texas . . . Anglo majority."
And yes, a Spanish accent is relevant, as is an accent from China versus Taiwan, or Iranian.
Do we have to be politically correct so we stifle discussion? I think there is enough of that in the USA already.
The original post was "good knowledge."
I for one would like us to post technical knowledge at TOD, be it blue or red state knowledge. There is a wage differential between Mexico and the USA and immigrants, in either direction, impact that. We should discuss it and know it.
I work in the Gulf of Mexico right now and there are people on my rig of multiple nationalities. Most are bilingual and a few only speak spanish. I don't think that is bad americans follow the money all over the world to drill oilfield workers are notoriously mercenary. You are right halfin this insider has a problem with anyone who is different.
Matt
First of all, I would question whether "Anglos", as anyone who is white has been pigeonwholed into, are actually, demographically, the majority anymore. 2000 census was a fairly long time ago, and it tends to under-represent Hispanics.
Second, to make such a blatently stereotypical statement that "Anglo" Texans are xenophobic is pretty pigheaded. Of course there's people who are, but it probably doesn't represent the majority, or even a large percentage. Alot of it tends to be where you live in Texas, as people don't really recognize that Texas has several different regions. The valley, the coast, and far west Texas is less hostile to Mexicans than say, far North Texas, which has a much more plains feel to it.
They took urr jobs!
You raise a most interesting point about Texas; it is such a diverse "country." What I have seen is a whole bunch of "anti-Texas" stereotyping, and that goes back for at least fifty years, and probably longer.
Of course the history of racism in Texas is a long one, going back about five hundred years to first contact between Spaniards and Native Americans.
From casual empiricism (also known as "horseback opinion," i.e., no solid data to back it up) I have seen far, far more racism agains both Latinos and Blacks in northern states than I have seen in Gulf states. People who grew up with others of different ethnic identity know that people are individuals, regardless of accent or appearance. People who grew up in lilly-white suburbs often have a fear of nonwhites that is virulent and based on the most primitive fears and stereotypes.
What I find most sad is the increasing hatred that I see of one minority group for another--especially Blacks vs. Latinos, but also ones you might never think of, such as Somali immigrants vs. Blacks, or warfare between Mexican and Asian gangs.
Why the migration to exurbs? Very largely this is White flight to get away from poor people of color, who tend to be concentrated in urban slums.
Us white folk are a minority of the globe's population though we consume a majority of the world's oil.
Not that there aren't racists etc. here, but it is less common than many other places I have lived. I have definitely noted that the really agressive anti-immigrant, anti-Mexican folks that are not confortable around non-whites tend to be people from other more Northernly climes that have recently moved here, but that is anecdotal.
LOL.
First they take urr jobs.
Then they take urr bedroom!
I have seen some strange stuff in the rebar industry (also concrete/cement) in California over the last 5 years that reflects material going to China (and we getting rebar from Egypt of all places). It is simply a market reaction.
Competition and free markets at work for a change.
If you could sell steel at a higher price to China, or a lower contract price to Mexico, what would you do?
I find this "concern" by people so ironic. It's the same as the Softwood Lumber dispute between Canada and the US. Canada gets accused of "dumping" logs into the US market when in fact it's market economics that dictates the price payed. Our dollar is low... it's cheaper to buy from us than from the US. That's just the way it is!
Historically, these booms--Texas; Lower 48 and North Sea--may have been profitable, and companies may have found new reserves, but the drilling booms did nothing to reverse the production declines. By and large, we find the big field first. The smaller fields that subsequently find can't make up for the declines in the large, old fields.
Having said that, you ain't seen nothing yet. IMO, everything to date has just been the preamble. I think that we are right on the verge of the really large oil price increases.
I think that the markets are sending a signal that the US is running short of light, sweet crude oil imports. Gross US oil imports--all qualities--were down about 4% in March, 2006 versus March, 2005. Our problem is that we have a lot of importers bidding for--I predict--declining net export capacity worldwide.