Risk Is Clear in Drilling - Payoff ...

Risk Is Clear in Drilling - Payoff Isn't

There are 38 comments on the www.nytimes.com story from Apr 1, 2010, titled Risk Is Clear in Drilling - Payoff Isn't. In it, www.nytimes.com reports that:

In proposing a major expansion of offshore oil and gas development, President Obama set out to fashion a carefully balanced plan that would attract bipartisan support for climate and energy legislation while increasing production of domestic oil.

Join the discussion below, or Read more at www.nytimes.com.

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freebird

Spring, TX

#23 Apr 1, 2010
The laughing liberal wrote:
<quoted text>
What's wrong with drilling?
WHO SAID ANYTHING WAS WRONG WITH DRILLING?I AM ALL FOR IT ALONG WITH NUCULEAR(SIC)WIND,SOLAR,WHATEV ER IT TAKES TO BE INDEPENDANT!!!

Since: Sep 07

Havre De Grace, MD

#25 Apr 1, 2010
Mac-7 wrote:
<quoted text>
The science of oil production is very advanced and I couldn't begin to tell you all the tricks they use but they usually don't drill until after all the tests are completed and they are pretty sure they will find oil.
And one reason for that if you think about it is that the offshore riggs are so massive and so expensive that they can't just tow them around drilling random holes in the ocean floor while hoping for a gusher.
A lot of it is done using sonar that penetrates the rocks and gives a 'map' of the various rock strata. I have no idea how they interpret that data, honestly.
The day of the 'wildcatter' is definitely gone the way of the dodo.

“SEMPER FI”

Since: Feb 10

Location hidden

#26 Apr 1, 2010
sailorman2 wrote:
And just how many Americans out there in cyberland actually believe what Obama says at any one time. I for one trust him about as much as I can throw a horse over the fence. He is just setting us up for what will be an energy policy fiasco just like the health care fiasco. The man is a socialist and he ain't going to change anytime soon.
It's going to be included in the "Cap and Tax" legislation. If you want to "explore" for oil......vote yes on "Cap and Tax". Another piece of "sham" legislation.

“Did U plug the damn hole yet?”

Since: Jan 08

Rowlett, TX

#27 Apr 1, 2010
Leria wrote:
<quoted text>
A lot of it is done using sonar that penetrates the rocks and gives a 'map' of the various rock strata. I have no idea how they interpret that data, honestly.
The day of the 'wildcatter' is definitely gone the way of the dodo.
The advancement of exploration science and drilling technology is the reason we have never reached peak oil.

Since 1925 when the first prediction was made we keep finding new pockets to exploit.

The pool of oil is not inexhaustable, but I predict oil will become obsolete before we run out of it.
Nancy

United States

#28 Apr 1, 2010
Interesting
skeptic

Bigfoot, TX

#29 Apr 1, 2010
Leria wrote:
We have enough oil in this country that, if we even made serious attempts to BUILD oil platforms, the price would go down just because of that.
We wouldn't even have to build actual platform, just go through the motions and the speculators would not be able to hype up the price of oil anymore like they do today.
WRONG!!!!! We haven’t produced as much oil as we consumed since the Eisenhower years. We now MUST import about 2/3rds of what we NEED. NO AMOUNT of drilling could come even close to producing that much but might at least slow the growth of imports!

The “oil giants”(ExxonMobil, BP, Shell, Chevron, Total and Conoco Phillips) are quite willing to drill ANYWHERE they believe there is enough crude to make money and spend many billions every year doing just that. In fact EVERY ONE of them makes most of their profit from exploration and production rather than refining and marketing and FAR more outside the US than here. As an example ExxonMobil, the largest, makes about 85% of their profit outside the US.

Speculation MAY have played a part in the runup of crude prices to $150/Bbl but is not a significant factor with prices of $75-95/Bbl. That is OPECs current "target."
skeptic

Bigfoot, TX

#30 Apr 1, 2010
Mac-7 wrote:
<quoted text>
The advancement of exploration science and drilling technology is the reason we have never reached peak oil.
Since 1925 when the first prediction was made we keep finding new pockets to exploit.
The pool of oil is not inexhaustable, but I predict oil will become obsolete before we run out of it.
King Hubert’s theory of “peak oil” was published in 1956, not 1925. He DID grossly underestimate new discoveries but the theory is now accepted almost universally. EVERY oil field reaches a peak of production, then producibility begins to decline in a nearly logarithmically pattern. One huge question is what the producibility of Ghawar in Saudi, the largest field in the world, was and/or is. There are those who believe it has peaked.

“Oil” can be manufactured from natural gas or coal and most forecasters believe crude (including the “heavy crude substitutes from Canada and Venezuela) plus manufactured oil will last until 2100, even with growth in demand.

Still it’s not to early for research on alternatives. Just don’t put us into bankruptcy by forcing use of them!
skeptic

Bigfoot, TX

#31 Apr 1, 2010
The laughing liberal wrote:
Key drivers of oil exploration
Price of oil - The backdrop to all conversations about oil exploration is both the price, and the current worldwide proven reserves, of oil.
Taken together, these determine whether a specific exploration project will be economically attractive.
In particular, the higher the price of oil, the more expensive it can be to draw oil out of the ground and still make a profit. This makes smaller fields, more remote fields, and oil that require more processing all the more viable.
Technology - As one might imagine, the availability of computers and advances in seismic technology have drastically improved the process of oil exploration, which was once little more than drilling a well and crossing your fingers.
Advances have pushed the envelope of what is feasible, both in terms of finding where oil is and figuring out how to extract it once a company has identified where it is.
General Electric Company (GE), for example, offers "Intelligent Drilling" technology, while a variety of engineering and seismic services firms offer the latest in technology to find oil (e.g., 3D seismic mapping).
Availability of oil field services - The availability of equipment and qualified professionals to service it represents a genuine bottleneck in oil exploration.
The price of "oilfield services," which includes all the ancillary requirements for drilling and operating a well, rose 20% in 2006. Lack of availability of drill rigs (for drilling oil), skilled petroleum services professionals, seismic trucks, etc., can be a constraint in oil exploration. Note especially the increase in drill rig rental rates experienced around the world (chart on left).
In its Q4/2007 Earnings Call, Andrew Gould of Schlumberger pointed out that, worldwide, 93% of jackups, 97% of semi-submersibles, and 100% of drillships are currently being utilized, with very few new offshore rigs coming online in 2008. This makes significant offshore growth in 2008 relatively unlikely, as capital is already being used almost to capacity.
This lack of capital to meet demand will probably drive up oilfield services rates significantly.
You might be interested in the stock prices of the largest owner of drill ships in the world, Transocean (RIG on the NYSE). They got as high as 152 in June of 2008 about when crude peaked but fell to 47 by December when crude prices fell. They’ve now recovered to the mid 80’s. What a wild ride!

Schlumberger is a French company but trades on the NYSE. They are the 2nd largest company in the “Oil Field Services” industry after Transocean. One of their specialties is seismic work and they are fully the equal of the “oil giants.” Their stock performed somewhat like Transocean but with a “double peak.”

I doubt that there is a “lack of capital.” ExxonMobil sort of proved that by offering $40billion for XTO!

“Did U plug the damn hole yet?”

Since: Jan 08

Rowlett, TX

#32 Apr 1, 2010
skeptic wrote:
<quoted text>
King Hubert’s theory of “peak oil” was published in 1956, not 1925. He DID grossly underestimate new discoveries but the theory is now accepted almost universally. EVERY oil field reaches a peak of production, then producibility begins to decline in a nearly logarithmically pattern. One huge question is what the producibility of Ghawar in Saudi, the largest field in the world, was and/or is. There are those who believe it has peaked.
“Oil” can be manufactured from natural gas or coal and most forecasters believe crude (including the “heavy crude substitutes from Canada and Venezuela) plus manufactured oil will last until 2100, even with growth in demand.
Still it’s not to early for research on alternatives. Just don’t put us into bankruptcy by forcing use of them!
The first prediction of peak oil that I can find was indeed in 1925.

And naturally is came from a "expert" and was published in the New York Times.

http://www.greentechhistory.com/2009/07/1925-...

"“Within the lifetime of most of the present drivers of automobiles there will be no more gasoline. It is a serious thing to contemplate, particularly from the standpoint of the manufacturer. Estimates based on the most complete data now available place the end of our gasoline supply between ten and twenty years, with the odds in favor of ten rather than twenty.”

— D.H. Killefer, secretary of the New York section of the American Chemical Society, in a 1925 New York Times editorial entitled,‘Seek New Fuel Supply to Replace Gasoline.’"
skeptic

Houston, TX

#33 Apr 1, 2010
Mac-7 wrote:
<quoted text>
The first prediction of peak oil that I can find was indeed in 1925.
And naturally is came from a "expert" and was published in the New York Times.
http://www.greentechhistory.com/2009/07/1925-...
"“Within the lifetime of most of the present drivers of automobiles there will be no more gasoline. It is a serious thing to contemplate, particularly from the standpoint of the manufacturer. Estimates based on the most complete data now available place the end of our gasoline supply between ten and twenty years, with the odds in favor of ten rather than twenty.”
— D.H. Killefer, secretary of the New York section of the American Chemical Society, in a 1925 New York Times editorial entitled,‘Seek New Fuel Supply to Replace Gasoline.’"
You are technically correct. In fact I believe there were cries of “wolf” even earlier but I believe the first forecast that those in the industry have come to accept WAS by King Hubbert (I got his name wrong as well) in 1956. See:

http://www.hubbertpeak.com/hubbert/1956/1956....

I’m NOT a geologist. My interest in the energy industries (for over 50 years) has been in their financials and in investments but I HAVE contacted many experts on geology and ALL believe there IS “Peak Oil.” The question is when and that does depend to a large extent on ability to produce rather than past production by Saudi. They regard that information as a “state secret.”

By the way I was a member of the ACS and their Petroleum Division for many years and knew a man who became their President very well but that does NOT make me (or him) an expert at forecasting how much crude oil remains to be found or how much of that can be recovered economically.

Of course you remain free to doubt the experts but I chose to accept them.

“Did U plug the damn hole yet?”

Since: Jan 08

Rowlett, TX

#34 Apr 2, 2010
skeptic wrote:
<quoted text>
You are technically correct. In fact I believe there were cries of “wolf” even earlier but I believe the first forecast that those in the industry have come to accept WAS by King Hubbert (I got his name wrong as well) in 1956. See:
http://www.hubbertpeak.com/hubbert/1956/1956....
I’m NOT a geologist. My interest in the energy industries (for over 50 years) has been in their financials and in investments but I HAVE contacted many experts on geology and ALL believe there IS “Peak Oil.” The question is when and that does depend to a large extent on ability to produce rather than past production by Saudi. They regard that information as a “state secret.”
By the way I was a member of the ACS and their Petroleum Division for many years and knew a man who became their President very well but that does NOT make me (or him) an expert at forecasting how much crude oil remains to be found or how much of that can be recovered economically.
Of course you remain free to doubt the experts but I chose to accept them.
All of the people who have predicted peak oil in the past were correct - based on the knowledge available at that time.

But science and technology marches on.

Which makes peak oil an elusive target that is always just over the horizon but has never been reached.

In spite of what some say, most libs are not really worried about running out of oil.

On the contrary, most liberal/progressives are worried that we won't run out soon enough, depending on how much they buy into the mad-made global warming theory.
Clyde

Houston, TX

#35 Apr 2, 2010
The President released the 20-year moratorium on oil exploration on federally controlled areas. Federally controlled areas on the East Coast is pass the 3 nautical mile limit from the high tide point. Normally each state control the resources from the high tide point out to 3 nautical miles, the exception is Texas and Florida. Both states control the natural resources out to 3 leagues or about 10 statue miles out to sea.

Oil companies must bid on tracts of ocean in which they wish to explore based on preliminary seismic readings. The geological maps based on seismic soundings shows where the oil or gas might be, it doesn't guarantee that there is oil or how much oil there is. To get an accurate reserve value you must drill. Before you can drill you have to acquire the exploration rights. To get the exploration rights you have to bid on tracts of area offered for exploration. The oil companies must pay for the exploration tracts and then pay royalties for every barrel of oil they extract. If they lay down a pipeline on the sea floor, as soon as it enters a state's 3 nautical mile limit, they must pay a fee. They need to get the state to give them a right of way to run their pipeline. They need to then pipe their crude oil to a refinery to sell their oil. There is a lot of money that must be put up front before the first barrel of oil is sold.

The Gulf states have the infrastructure to develop a huge oil field, whereas the East Coast has limited infrastructure. Shell Oil recently drilled a deep-well off the coast of Louisiana within the state's resource area and found a profitable natural gas field. It will be years before the field is developed and becomes profitable.

Having a proven oil field doesn't mean the oil companies will be knocking down the doors. The oil companies have mixed feelings about the Eastern Seaboard states and are very leery of investing their money. They were burned once by Venezuela and lost their investment when the government kicked them out. Venezuela is now having a hard time getting the major oil companies back to develop their oil fields. The Russians and Chinese have signed contracts with them, but the Venezuelans are finding out that the Russians and Chinese don't have the expertise to develop new oil field.

Shell Oil discovery
http://www.shell.com/home/content/media/news_...


Tapped Out
http://www.foreignpolicy.com/articles/2010/03 ...

Shell: Venezuela Begging For Investors, But Nobody Wants To Be The Fool
http://www.businessinsider.com/shell-venezuel ...
skeptic

San Antonio, TX

#36 Apr 2, 2010
Clyde wrote:
The President released the 20-year moratorium on oil exploration on federally controlled areas. Federally controlled areas on the East Coast is pass the 3 nautical mile limit from the high tide point. Normally each state control the resources from the high tide point out to 3 nautical miles, the exception is Texas and Florida. Both states control the natural resources out to 3 leagues or about 10 statue miles out to sea.
Oil companies must bid on tracts of ocean in which they wish to explore based on preliminary seismic readings. The geological maps based on seismic soundings shows where the oil or gas might be, it doesn't guarantee that there is oil or how much oil there is. To get an accurate reserve value you must drill. Before you can drill you have to acquire the exploration rights. To get the exploration rights you have to bid on tracts of area offered for exploration. The oil companies must pay for the exploration tracts and then pay royalties for every barrel of oil they extract. If they lay down a pipeline on the sea floor, as soon as it enters a state's 3 nautical mile limit, they must pay a fee. They need to get the state to give them a right of way to run their pipeline. They need to then pipe their crude oil to a refinery to sell their oil. There is a lot of money that must be put up front before the first barrel of oil is sold.
The Gulf states have the infrastructure to develop a huge oil field, whereas the East Coast has limited infrastructure. Shell Oil recently drilled a deep-well off the coast of Louisiana within the state's resource area and found a profitable natural gas field. It will be years before the field is developed and becomes profitable.
Having a proven oil field doesn't mean the oil companies will be knocking down the doors. The oil companies have mixed feelings about the Eastern Seaboard states and are very leery of investing their money. They were burned once by Venezuela and lost their investment when the government kicked them out. Venezuela is now having a hard time getting the major oil companies back to develop their oil fields. The Russians and Chinese have signed contracts with them, but the Venezuelans are finding out that the Russians and Chinese don't have the expertise to develop new oil field.
Shell Oil discovery
http://www.shell.com/home/content/media/news_...
Tapped Out
http://www.foreignpolicy.com/articles/2010/03 ...
Shell: Venezuela Begging For Investors, But Nobody Wants To Be The Fool
http://www.businessinsider.com/shell-venezuel ...
VERY good post!

You might add that many of the bids on offshore tracts are what I call “lottery ticket” bids of “only”$1 million or less. That’s pin money to a large oil company. Exploratory drilling in deep water costs much more.

Those tracts will never see a drill unless new seismic evidence shows a better chance of oil or gas or there is discovery of potentially profitable hydrocarbons on a nearby tract.

Both Russia and China take advantage of knowledge of the "oil giants" including those headquarter in the US. ExxonMobil, Chevron and Conoco Phillips all have projects with them. Conoco Phillips even owns 20% of the Russian shareholder-owned oil company, Lukoil.
Clyde

United States

#37 Apr 2, 2010
skeptic wrote:
<quoted text>
VERY good post!
You might add that many of the bids on offshore tracts are what I call “lottery ticket” bids of “only”$1 million or less. That’s pin money to a large oil company. Exploratory drilling in deep water costs much more.
Those tracts will never see a drill unless new seismic evidence shows a better chance of oil or gas or there is discovery of potentially profitable hydrocarbons on a nearby tract.
Both Russia and China take advantage of knowledge of the "oil giants" including those headquarter in the US. ExxonMobil, Chevron and Conoco Phillips all have projects with them. Conoco Phillips even owns 20% of the Russian shareholder-owned oil company, Lukoil.
Thanks for your comment. I notice that the last two links were broken; I fixed them.

Tapped Out
http://www.foreignpolicy.com/articles/2010/03...

Venezuela begging for investors but nobody wants to be the fool
http://www.businessinsider.com/shell-venezuel...

“Freedom Demands Responsibility”

Since: Aug 09

21st Century

#38 Apr 2, 2010
Woof, Obama is pulling a Chicago three card monte. He is opening a lot of leases for "Exploration" and calling it "Drilling". The Press is telling the gullible public that Obama is "Drilling Baby Drilling", which he isn't, and Obama is then going to combine the bridge from Exploration to Drilling into the Cap and Trade Bill, and when the Conservatives vote against it, he Pelosi and Reid will say that Conservatives are against Drilling! Just watch!

If the Republicans fall for this one, they are seriously stupid - that is why Conservatives must rid themselves of Senators like McCain, Graham, Snow, Collins, etc.
skeptic

San Antonio, TX

#39 Apr 3, 2010
Clyde wrote:
<quoted text>
Thanks for your comment. I notice that the last two links were broken; I fixed them.
Tapped Out
http://www.foreignpolicy.com/articles/2010/03...
Venezuela begging for investors but nobody wants to be the fool
http://www.businessinsider.com/shell-venezuel...
Thanks. I found the article from Business Insider but not that from Foreign Policy.

Do you know if all the “oil giants” actually left Orinoco? The last I knew was that only ExxonMobil and Conoco Phillips pulled out completely…that the others DID give control to PdVSA and remained (but refused to invest further).

Do you know of any Russian or Chinese refineries with the coker capacity necessary for processing of the heavy “crude substitute” from Orinoco? If not would they not be forced to sell that product to a refiner that does have the needed coker capacity?

Chavez would seem to have Hess over something of a barrel (no pun intended). Hess has a rather small refinery in New Jersey but shares a much larger one in the US Virgin Islands with PdVSA and supplied with Venezuelan crude. I’ve read that Chavez has threatened to cut off crude supply. Hess certainly seems to have been one of the most aggressive bidders for offshore tracts in 2008. Do you know anything on this?

I’m certainly glad to find a poster on these threads who actually seems to know something about the world oil industry! I limit my own investments to US companies but recognize that the industry is global.

Clyde

Houston, TX

#40 Apr 3, 2010
skeptic wrote:
<quoted text>
Thanks. I found the article from Business Insider but not that from Foreign Policy.
Do you know if all the “oil giants” actually left Orinoco? The last I knew was that only ExxonMobil and Conoco Phillips pulled out completely…that the others DID give control to PdVSA and remained (but refused to invest further).
Do you know of any Russian or Chinese refineries with the coker capacity necessary for processing of the heavy “crude substitute” from Orinoco? If not would they not be forced to sell that product to a refiner that does have the needed coker capacity?
Chavez would seem to have Hess over something of a barrel (no pun intended). Hess has a rather small refinery in New Jersey but shares a much larger one in the US Virgin Islands with PdVSA and supplied with Venezuelan crude. I’ve read that Chavez has threatened to cut off crude supply. Hess certainly seems to have been one of the most aggressive bidders for offshore tracts in 2008. Do you know anything on this?
I’m certainly glad to find a poster on these threads who actually seems to know something about the world oil industry! I limit my own investments to US companies but recognize that the industry is global.
I think that most of the heavy hitters in the oil industry have abandon Venezuela and only a few non-national oil companies with limited investment have remained. There are a lot of international lawsuits pending against Venezuela over the nationalization of the international oil companies' investment in Venezuela. The Venezuelans invited 52 oil companies to bid on three tracts, only 19 paid for the seismic readings on the tracts, and only two tracts were bought. Before the bidding, the Venezuelans pissed-off the French oil companies when they nationalized a French own supermarket chain in Venezuela. The Venezuelans said that the French own supermarket was selling groceries at too high a price, so they took it over.

I don't know if the Chinese or Russians have the technology or expertise to make a profit converting the heavy Venezuelan crude oil, most likely they will just use it for heating oil.

Hess' HOVENSA is a 50-50 joint venture refinery, they really got screwed over by the Venezuelans on their joint refinery in US Virgin Islands with PdVSA. With all of the lawsuits pending, there is the possibility that courts outside of Venezuela will freeze PdVSA investments. HOVENSA's crude oil supply agreement with PdVSA is to purchase the oil at the oil terminal in St. Croix, U.S. Virgin Islands, the oil is therefore potentially exposed to confiscation risk before HOVENSA takes title to the crude. Conoco Phillips also has a 50-50 joint refinery venture with PdVSA, their crude oil supply agreement with PdVSA is at Puerto la Cruz port in Venezuela.

Conoco Phillips had given notice to PdVSA that they are going to exercise their option to buy out PdVSA's share in the joint venture since PdVSA had not met their obligation to supply enough crude oil to the Merey Sweeney LP unit. Ironically the Venezuelans are not protesting the buy-out value Conoco Phillips gave for their investment; they are protesting that they have met their crude oil supply obligation.

Chevron, partners to develop Venezuelan oil fields
http://www.chron.com/disp/story.mpl/business/...

Conoco Says It Received Notice Of PDVSA International Lawsuit
http://www.smartmoney.com/news/ON/... ;

TEXT-Fitch release on HOVENSA and Merey Sweeny
http://uk.reuters.com/article/idUKWNA16282008...

“Did U plug the damn hole yet?”

Since: Jan 08

Rowlett, TX

#41 Apr 3, 2010
FreeDog wrote:
Woof, Obama is pulling a Chicago three card monte. He is opening a lot of leases for "Exploration" and calling it "Drilling". The Press is telling the gullible public that Obama is "Drilling Baby Drilling", which he isn't, and Obama is then going to combine the bridge from Exploration to Drilling into the Cap and Trade Bill, and when the Conservatives vote against it, he Pelosi and Reid will say that Conservatives are against Drilling! Just watch!
If the Republicans fall for this one, they are seriously stupid - that is why Conservatives must rid themselves of Senators like McCain, Graham, Snow, Collins, etc.
The Republicans should say that in the spirit of bipartisanship they support the decision to open offshore exploration because it is the right thing to do.

That does not however apply to a massive OBAMA/PELOSI energy tax.

Because that would be a mistake and bad for America.

It's really a pretty crude trap that the GOP can easily avoid if they just use a little common sense.

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