Posts Tagged ‘Oil production’

Protests Over Utah Oil Lease Auctions

December 24, 2008


An interesting piece from last night’s Rachael Maddow Show on MSNBC which touches on some of the oil company activities highlighted in Antonia Juhasz’s book, ‘The Tyranny of Oil’ (see earlier post). Most people agree that new sources of oil need to be found. The question that needs to be asked is “at what price are we willing to get this oil?”.

Big Oil Companies May Buy Out Small Producers

November 24, 2008



USA Crude Oil Production 2005

Crude Oil Production 2005

Now here’s an interesting dilemma. Everybody is all fired up to “drill, baby, drill” so that we don’t have to spend so much money buying the foreign stuff; prices are high so there is lots of incentive to invest in new production; there’s lots of diversity in terms of large and small producers; and the lifting of restrictions of offshore drilling means new territory to be explored. And then the the price falls. . . 

“Altogether, the nation’s roughly 5,000 independent operators account for 68 percent of oil and 82 percent of the natural gas produced in the U.S., according to the Independent Petroleum Association of America”, to quote an article by CNN on Friday (see full report here).  But, the report goes on to highlight, with the price of crude falling to below $50 a barrel, and combined with the difficulties of obtaining credit because of the financial crisis, and suddenly all that drilling doesn’t look quite as attractive as it did a few weeks ago. An interesting potential side effect is that the combination of falling prices and tight credit could lead to many of the smaller operators being swallowed up by the big boys.

We are all aware of the record profits made by the big oil companies in recent months and this means that they have fairly hefty cash reserves on hand. There are also a lot of small producers who have readily exploitable land-based properties but who are struggling to find the finance to work their claims. Now, for the large, cash-rich companies these small land-based properties might become quite an investment bargain when compared to something like the costs of exploring new territories offshore. Even Chesapeake, America’s biggest gas producer has been cited by CNN as a potential BP target. It will at least mean that those territories will be worked whereas under the small producers they may not have been, the article concludes, but much is going to depend on how long those prices stay that low, and how quickly the big boys act in the meantime.

Low Oil Prices Put Production Investment at Risk

November 3, 2008


OPEC to cut production by 1.8m barrels to curb price fall
While many of might be giving a sound hurrah as we stand at the pumps filling up our gas-guzzlers, the falling price of oil has many of the world’s leaders and oil company execs worried. The big problem is that such a sudden collapse, and with such a volatile market, many of the planned production projects aimed at expanding the supply of oil to meet future demands have become economically inviable. Such was the concern of OPEC members as it argued for a cut in production of nearly 2 million barrels a day in order to stabilise price levels. Carola Hoyos of the Financial Times quoting their communique of last week – “Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude – with these falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

One problem is that many of the world’s current oil production areas are ageing and in decline, especially in Russia. Russia is one of the world’s largest oil exporters and although they have introduced tax incentives to encourage companies to invest in new production, many analysts are being reported as saying that it is “too little, too late.” 

What is also likely to be in jeopardy is investment in some of the large alternative energy projects being planned. For example, Hoyos cited Royal Dutch Shell which is pulling out from its proposed investment in the ‘London Array’ project – the world’s largest offshore windfarm, and has instead decided to look at onshore wind energy on the U.S. mainland which is far less risky.

In a study by the IEA due out next month, it is estimated that $360 billion  per year will need to be invested in oil production if future demands are to be met. Iran is a classic case where it has great reserves of oil but it’s nationally controlled oil companies don’t have the technical capability of maintaining its infrastructure. Much of the investment would need to be directed at such countries, but with the price of oil so low it is much more difficult to get the kind of investment funding required.