Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Oil Megaprojects Won't Stay On The Shelf For Long

Commodities / Crude Oil Nov 06, 2015 - 02:48 PM GMT

By: OilPrice_Com

Commodities One casualty of the oil price downturn could be the megaproject.

For years, as conventional oil reserves depleted and became increasingly hard to find, oil companies ventured into far-flung locales to find new sources of production. Extracting oil from these frontier areas required more advanced technology and a lot more capital: Ultra deepwater, Arctic offshore, heavy oil sands, and increasingly, the Lower Tertiary.


Often these megaprojects projects were only the purview of the largest oil companies, as smaller players did not have the resources – financial or technological – to make them work. Meanwhile, smaller drillers, at least in North America, turned to shale, which required less upfront cash and could be turned around on a quick timetable.

The collapse of oil prices, however, could kill off the megaproject. The oil majors are scrambling to cut costs, and large-scale projects with high costs and long time-horizons are not making the cut. A combined $19 billion in write-downs was recorded in the last week of October as the oil industry reported third quarter earnings.

Spending on deepwater exploration is expected to be cut 20 to 25 percent industry-wide, according to Barclays, substantially higher than the 3 to 8 percent cut for exploration on all varieties of fields.

One problem for these large projects is chronic delays and ballooning costs. Around 80 percent of large projects fail to stay on budget and come online at the expected start date, according to Bloomberg. About three-quarters of them have suffered delays, and two-thirds have blown through their original cost expectations.

That could force even the oil majors to start to back away from large-scale oil projects. Royal Dutch Shell recently scrapped its Arctic program and wrote off a costly oil sands asset at Carmon Creek. The completion of Chevron's Big Foot project in the Gulf of Mexico will be pushed back by a few years because of equipment problems.

In a glaring example of shifting priorities, ConocoPhillips announced that it was backing out of deepwater altogether. By 2017, the company says it will cease deepwater exploration and will sell off its offshore leases that it does not plan on developing. Conoco has the rights to 2.2 million acres of Gulf of Mexico territory, and it could still develop some fields, but it will stop searching for new discoveries. The decision will save $800 million in exploration costs, money that will be redirected to exploration in other areas. "We are exercising flexibility in our capital program, dramatically lowering our cost structure and divesting assets that do not compete for funding in our portfolio," ConocoPhillips CEO Ryan Lance said in a statement.

With the largest oil companies starting to back away from the megaproject, the result could mean a greater focus on shale. Production from an average shale well is a fraction of a deepwater well, for example, and output also suffers from dramatically steeper decline rates compared to offshore. However, drilling a shale well can cost a few orders of magnitude less than a large-scale offshore project. That is a feature that is hard to overemphasize in today's oil pricing environment.

The narrower focus on smaller projects, especially shale, could mean the end of the megaproject. The collapse in prices may mean we don't see more white elephants like the Kashagan project in Kazakhstan, an offshore boondoggle that has required more than a decade of development, tens of billions of dollars, and still won't come online for a few more years. Or, LNG export facilities like the massive Gorgon LNG, led by Chevron, which saw costs balloon to more than $54 billion, could be the last of its kind.

Then again, there is a question about whether or not shale can really be a major source of supply over the long-term. The International Energy Agency sees North American shale peaking towards the early part of the 2020s and declining thereafter, all but making it a blip on the radar when looking at oil production from a long-term standpoint. By the 2020s, the IEA says, the world will once again be dependent on traditional sources of supply – largely from the Middle East.

But for new sources of supply that are not state-owned, the industry may have to shift back to the mega deepwater projects that they are beginning to shun today.

Article Source: http://oilprice.com/Energy/Energy-General/Oil-Megaprojects-Wont-Stay-On-The-Shelf-For-Long.html

By Nick Cunningham of Oilprice.com

© 2015 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules