Oil: how low can it go?
Discussion
k for that, I knew that the King of Scotland and his wee little friend would save us all!!!!How much of the problem is just investors talking things down?
Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
If you look at historic oil prices long term 30 $/B is not unusual, and fits with my memory from the 80's in the North Sea, Troll was declared commercial at 11 8$/B and Balder which had a very fragmented reservoir was commercial at 22 $/B.
So supply is within 1% of demand, China announces it economy advanced 7% (approx). What is reported is that China slows down and we don't believe the figures for the economy.
I accept I've ignored stocks, inflation, new investments, enhanced recovery, etc and if you want with 40 years in oil industry I can expand on this, but I keep coming back to the opinion that most of the problem is driven by bear investors and financial journalist who don't even know the questions to ask.
Things like the BBC business report never mention anything about P/E ratios, dividend cover, return on investment, or any of he things I was lectured to look for in making investments when I was studying.
Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
If you look at historic oil prices long term 30 $/B is not unusual, and fits with my memory from the 80's in the North Sea, Troll was declared commercial at 11 8$/B and Balder which had a very fragmented reservoir was commercial at 22 $/B.
So supply is within 1% of demand, China announces it economy advanced 7% (approx). What is reported is that China slows down and we don't believe the figures for the economy.
I accept I've ignored stocks, inflation, new investments, enhanced recovery, etc and if you want with 40 years in oil industry I can expand on this, but I keep coming back to the opinion that most of the problem is driven by bear investors and financial journalist who don't even know the questions to ask.
Things like the BBC business report never mention anything about P/E ratios, dividend cover, return on investment, or any of he things I was lectured to look for in making investments when I was studying.
Berw said:
How much of the problem is just investors talking things down?
Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
If you look at historic oil prices long term 30 $/B is not unusual, and fits with my memory from the 80's in the North Sea, Troll was declared commercial at 11 8$/B and Balder which had a very fragmented reservoir was commercial at 22 $/B.
So supply is within 1% of demand, China announces it economy advanced 7% (approx). What is reported is that China slows down and we don't believe the figures for the economy.
I accept I've ignored stocks, inflation, new investments, enhanced recovery, etc and if you want with 40 years in oil industry I can expand on this, but I keep coming back to the opinion that most of the problem is driven by bear investors and financial journalist who don't even know the questions to ask.
Things like the BBC business report never mention anything about P/E ratios, dividend cover, return on investment, or any of he things I was lectured to look for in making investments when I was studying.
I can see some truth in this. We appear to live in a time when speculation & perceptions drive prices of many things rather than the reality of matching supply with demand. Hence we see wilder swings on both the upside & downside. As for the likes of China "slowing" what we actually mean is the acceleration is slowing, 2 very different things, but when we people are speculating on where China will be in 2 or 3 years time it becomes significant.Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
If you look at historic oil prices long term 30 $/B is not unusual, and fits with my memory from the 80's in the North Sea, Troll was declared commercial at 11 8$/B and Balder which had a very fragmented reservoir was commercial at 22 $/B.
So supply is within 1% of demand, China announces it economy advanced 7% (approx). What is reported is that China slows down and we don't believe the figures for the economy.
I accept I've ignored stocks, inflation, new investments, enhanced recovery, etc and if you want with 40 years in oil industry I can expand on this, but I keep coming back to the opinion that most of the problem is driven by bear investors and financial journalist who don't even know the questions to ask.
Things like the BBC business report never mention anything about P/E ratios, dividend cover, return on investment, or any of he things I was lectured to look for in making investments when I was studying.
The price of a barrel of oil must be getting close to the cost of production for operators in the North Sea, if the price keeps falling I wonder how long they can keep going. The numbers are huge, even for multinational oil companies, and there are only so many economies (job cuts) that can be made without affecting operations.
RYH64E said:
The price of a barrel of oil must be getting close to the cost of production for operators in the North Sea, if the price keeps falling I wonder how long they can keep going. The numbers are huge, even for multinational oil companies, and there are only so many economies (job cuts) that can be made without affecting operations.
It's not so simple as that. Cash flow is needed regardless of oil price, tax breaks are often dependent on production, postponement of decommissioning is financially advantageous. Cuts tend to be in the projects, the engineering and particularly the exploration side of things as they cost without actually generating cash. The issue comes when the industry tries to react by re-starting the 7-yearish cycle of projects from inception to production. Nobody leaves oil in the ground for tomorrow when it can be produced today. That's a basic imperative.There aren't that many cuts in operation staff, drilling and well maintenance has been hit bad, and future projects are on hold. To date committed projects are going ahead but with reduced budget, at leas that;s my experience.
What is the cost of oil production? I doubt any one knows, amortized development cost + direct operation cost perhaps. But many old fields have been extended by refuter investments, near home look at Ekofisk, huge investment in 1986 on Ekofisk center, to extend by 30 years, the 30 years is up, and its still going, so only day to day operating cost now?
Then there are the associated cost imposed by government, you can probably guess which very large building I am in now, and the oils company I work for in Malaysia, (so I don't put the name up), The capital cost of the building were huge, nothing to do with getting oil out of the ground all to do with ego, how do you justify/amortize the cost of this building back to an oil field 6,000 mile away?
The real issue at this time is can the oil companies generate cash, not profit/cost.
What is the cost of oil production? I doubt any one knows, amortized development cost + direct operation cost perhaps. But many old fields have been extended by refuter investments, near home look at Ekofisk, huge investment in 1986 on Ekofisk center, to extend by 30 years, the 30 years is up, and its still going, so only day to day operating cost now?
Then there are the associated cost imposed by government, you can probably guess which very large building I am in now, and the oils company I work for in Malaysia, (so I don't put the name up), The capital cost of the building were huge, nothing to do with getting oil out of the ground all to do with ego, how do you justify/amortize the cost of this building back to an oil field 6,000 mile away?
The real issue at this time is can the oil companies generate cash, not profit/cost.
There aren't that many cuts in operation staff, drilling and well maintenance has been hit bad, and future projects are on hold. To date committed projects are going ahead but with reduced budget, at leas that;s my experience.
What is the cost of oil production? I doubt any one knows, amortized development cost + direct operation cost perhaps. But many old fields have been extended by refuter investments, near home look at Ekofisk, huge investment in 1986 on Ekofisk center, to extend by 30 years, the 30 years is up, and its still going, so only day to day operating cost now?
Then there are the associated cost imposed by government, you can probably guess which very large building I am in now, and the oils company I work for in Malaysia, (so I don't put the name up), The capital cost of the building were huge, nothing to do with getting oil out of the ground all to do with ego, how do you justify/amortize the cost of this building back to an oil field 6,000 mile away?
The real issue at this time is can the oil companies generate cash, not profit/cost.
What is the cost of oil production? I doubt any one knows, amortized development cost + direct operation cost perhaps. But many old fields have been extended by refuter investments, near home look at Ekofisk, huge investment in 1986 on Ekofisk center, to extend by 30 years, the 30 years is up, and its still going, so only day to day operating cost now?
Then there are the associated cost imposed by government, you can probably guess which very large building I am in now, and the oils company I work for in Malaysia, (so I don't put the name up), The capital cost of the building were huge, nothing to do with getting oil out of the ground all to do with ego, how do you justify/amortize the cost of this building back to an oil field 6,000 mile away?
The real issue at this time is can the oil companies generate cash, not profit/cost.
Berw said:
How much of the problem is just investors talking things down?
Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
that may well be correct, but current stocks are at all time highs, I was lead to believe there's enough oil in storage for 3+ months world supply.Yesterday I was told that current oil production is only 1% above usage, and the slightest upturn would rectify the price drop.I was skeptical so I checked.
Current world consumption 94.14 million B/Day, Production 95.07, so roughly 1 % oversupply.
price wise, I guess it depends who 'owns' this stock and how they plan on recovering their investment?
Berw said:
What is the cost of oil production? I doubt any one knows, amortized development cost + direct operation cost perhaps. But many old fields have been extended by refuter investments, near home look at Ekofisk, huge investment in 1986 on Ekofisk center, to extend by 30 years, the 30 years is up, and its still going, so only day to day operating cost now?
Ekofisk Victor Alpha expansion in 2008/9(ish). 8 water injection trees, HOSTS, wellheads, WOCS, drilling & completion - another £100mEkofisk Victor Bravo expansion in 2011/12. 8 water injection trees with added functionality over VA, HOSTS, wellheads, upgraded WOCS, drilling & completion - another £100m at least
Again it's extending the field life another 20 years but that's £10m a year plus the extra maintenance and staff to run those wells.
emicen said:
Ekofisk Victor Alpha expansion in 2008/9(ish). 8 water injection trees, HOSTS, wellheads, WOCS, drilling & completion - another £100m
Ekofisk Victor Bravo expansion in 2011/12. 8 water injection trees with added functionality over VA, HOSTS, wellheads, upgraded WOCS, drilling & completion - another £100m at least
Again it's extending the field life another 20 years but that's £10m a year plus the extra maintenance and staff to run those wells.
Not to mention the most expensive hotel in the world 2/4L.Ekofisk Victor Bravo expansion in 2011/12. 8 water injection trees with added functionality over VA, HOSTS, wellheads, upgraded WOCS, drilling & completion - another £100m at least
Again it's extending the field life another 20 years but that's £10m a year plus the extra maintenance and staff to run those wells.
Our field (a little further south than Ekofisk) based on original estimates, should have been finished many years ago. Now with new platforms to replace the subsided ones, and water injection, we are good for 40 years more. All these extra costs though, in addition to p&a and decomissioning.
So last time oil price was this low, was 2003. Adjusting for inflation makes the oil price around $36.
It's still significantly lower in percentage terms but it's not a huge drop considering the recent decline.
We've been seeing huge cut backs way before the adjusted $36 price. At $28 in 2003 we had quite a few projects in full swing and plenty coming on line.
Anyone who works in the business knows there is a significant amount of costs to be cut. We've just had it too good for a while.
It's still significantly lower in percentage terms but it's not a huge drop considering the recent decline.
We've been seeing huge cut backs way before the adjusted $36 price. At $28 in 2003 we had quite a few projects in full swing and plenty coming on line.
Anyone who works in the business knows there is a significant amount of costs to be cut. We've just had it too good for a while.
GreatPretender said:
As clueless as everyone else but unsurprisingly bullish given that he is the CEO of one of the worlds largest oil companies.GreatPretender said:
Well it couldnt be a year of 3 halves could it ? How do these people get these jobs ?Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff