Oil drilling failure rate surges at the Western majors
It’s not a factor now in the climbing price of oil but the trend certainly doesn’t portend cheaper oil down the road. Or a rosy future for the Western oil giants.
In 2009 Chevron’s (CVX) drilling failure rate climbed to 35%. More than one-third of exploratory wells came up dry. That compares to a 10% failure rate in 2008.
And that’s by no means an isolated increase in the drilling failure rate. ConocoPhillips (COP) saw its failure rate climb to 43% in 2009 from 32% in 2008.
Higher failure rates mean that it gets more and more expensive to find new oil to replace what’s been pumped out of the ground. Chevron’s target is a modest 1% increase in oil and gas production this year. ConocoPhillips is forecasting a 2.7% drop in production in 2010.
The reasons for the climbing failure rate are pretty simple.
Can commodities do it again in 2010? I’d say the odds are against it
Stock markets staged a strong rally yesterday, January 4, boosted by strength in commodities and commodity stocks.
The Standard & Poor’s 500 stock index climbed 1.6% and the Dow Jones Industrial Average was up 1.5%. Oil (West Texas Intermediate) climbed $2.15 a barrel to $81.51. Copper hit a 16-month high at $7,536 a metric ton. Lead soared by 2.9% and tin by 3.4%.
Is this—rising commodity prices powering a climbing stock market—a trend that you want to bet on in 2010? Or was yesterday’s rally in commodity prices a one-day wonder?
Update Encana (ECA)
EnCana (ECA) formalized its split into two companies when it began trading as EnCana (ECA) and Cenovus Energy (CVE) on the New York Stock Exchange on December 9.
Shareholders in EnCana received one share of the new EnCana and one share of Cenovus for each share of the old EnCana they held before the split.
The transaction split the company’s oil and natural gas holdings with the new Cenovus getting the old EnCana’s oil projects and its established natural gas and crude oil production assets in Alberta and Saskatchewan. In addition Cenovus becomes the owner of the old company’s two oil refineries in Illinois and Texas.
The new EnCana, stripped of those oil assets, becomes a pure play natural gas company with production and development focused in unconventional natural gas shale formations in British Columbia, and in the United States in the Barnett, Montney, Horn River and Haynesville natural gas shale regions.
EnCana was lucky or smart enough to have hedged about two-thirds of its 2009 natural gas production at $9 per thousand cubic feet. Not too shabby when natural gas spent much of 2009 under $5 per thousand cubic feet.
What will the company do with that cash? Plus the $3.5 billion the new EnCana gets from Cenovus as part of the split up?
Oil to stay stuck at $70-$80 a barrel in 2010
So who ya’ gonna’ believe on oil prices in 2010?
The economists at the International Energy Agency predict that oil demand will pick up sharply in 2010, rising about 1.5 million barrels a day from 2009 levels.
Big oil traders, who handle about 15% of the world’s oil output, are significantly less optimistic, according to the Financial Times. They say, the newspaper reports, that demand will pick up more slowly than expected in the first half of 2010. These companies say the increase will be more on the order of 1 million barrels a day.
And that won’t be enough to move oil prices currently stuck in a trading range of $70 to $80 a barrel.
The problem, as the oil traders see it, is that although demand from China and India will increase strongly, growth in demand from developed economies will be anemic.
OPEC (the Organization of Petroleum Exporting Countries) looks like it’s going with the traders.
Shut out in Iraq: The country’s oil goes to everybody but the U.S.
All that blood and no oil?
Even if you don’t believe that the Iraq war was all about oil, the results of that country’s auction for the right to explore and develop its huge oil reserves were shocking: U.S. companies were just about shut out in the results announced in December 13. ExxonMobil (XOM), which won the right to develop the West Qurna 1 field back in November, is the only U.S. company to lead a winning bid. And Occidental Petroleum (OXY) is the only U.S. oil company that wound up as a junior partner in a winning bid.
Yes, Iraq’s oil fields, which could produce more oil—11 million barrels a day—by the end of the next decade than Saudi Arabia produces now, will be developed with almost no participation by U.S. oil companies.
As shocking as which companies didn’t win bids is which companies did.
- Royal Dutch Shell (RDS) will operate the Majnoon field (production target 1.8 million barrels of oil a day) and hold a 45% share. Its major partner with a 30% share will be Malaysia’s national oil company Petronas.
- China’s CNPC (CKKHY), Petronas, and France’s Total (TOT) will develop the Halfaya field (production target 535,000 barrels a day)
- Russia’s largest private oil company Lukoil (LUKOY), and Norway’s national oil company Statoil (STO) will develop West Qurna 2 (production target 750,000 barrels a day)
- Angola’s national oil company Sonangol will develop the Najma oil field (production target 110,000 barrels a day) and the Qayara field (production target 120,000 barrels a day)
- CNPC and BP (BP) will develop the Rumaila field (reserves of 17.8 million barrels)
- Petronas and Japan’s Japex will develop the Gharraf field (reserves of 860 million barrels)
- Russia’s Gazprom, Turkey’s TPAO, Korea’s KOGAS, and Petronas will develop the Badra field (production target 170,000 barrels a day).
