Get Ready for the Second U.S. Oil Boom

so much for seeing a crude price recovery anytime soon…

[B]Get Ready for the Second U.S. Oil Boom
[/B]

By MarEx 2015-07-16 20:45:10

By James Stafford

What OPEC countries fear most is a follow-up technological revolution that will lead to a second oil boom in the U.S., and that fear is now being realized.

A technological revolution spurred the U.S. oil boom that resulted in the greatest increase in domestic oil production in a century, and while that has stuttered in the face of a major oil price slump and an OPEC campaign to maintain a grip on market share, the American response could be another technological revolution that demonstrates that the first one was merely an impressive embryonic experiment.

It’s not only about shale now. It’s about reviving mature oil fields through advancements in enhanced oil recovery (EOR), potentially opening up not only new shale fields, but older fields that have been forgotten.

There are myriad gloom-and-doom stories about what is often alluded to as a short-lived oil boom in the U.S. But what many fail to understand is that revolutions of this nature are phased, with the advent of new technology typically followed by a temporary halt in progress while we study the results and come up with something even better.

What we’re looking at here are advancements in EOR for greater production and cost efficiency that can weather oil price slumps and awaken America’s sleeping giant oil fields. Soon we are likely to see some new players in the field buying up oil assets and putting more advanced EOR technologies to work to re-ignite the revolution.

The shale revolution was stunning, indeed. But there have been setbacks - even beyond the oil price slump that has rendered fracking expensive. Fracking uses a lot of water. According to a recent U.S. Geological Survey study, the process uses up to 9.6 million gallons of water per well and is putting farming and drinking sources at risk in arid states, and especially in major drought-ridden shale-boom venues like Texas.

Phase two of the U.S. oil boom hits at the heart of the inadequacies of the first phase, in a natural progression.

There are two very interesting EOR advancements that have caught our attention in recent months: CO2 EOR and Plasma Pulse Technology (PPT).

CO2, or carbon dioxide EOR, involves injecting CO2 into ageing oil fields to sweep residual oil to the surface. In some cases, it can extend the production life of a field by more than 25 years. The U.S. is fortunate in this regard because it has a large volume of low-cost, naturally occurring CO2 at its disposal; however, in order to be widely employed the infrastructure to deliver it to oil fields has to be in place.

Visiongain estimates that global CO2 EOR spending will be $4.74 billion this year. “This will decline in the short term as low oil prices take their toll on the capital spending programs of CO2 EOR operators, but is expected to rise rapidly in the next decade.”

Then we have something a bit more futuristic, even though it is already commercially viable - Plasma Pulse Technology, or PPT. This is a patent pending technology that enables the “re-opening” of wells without water, without polluting chemicals and without causing earthquakes. The “re-opening” side of this equation means that it doesn’t open rock like fracking, rather it comes in afterwards and cleans up well bores to clear the pathway for oil to flow faster and more efficiently to the surface like it once did.

PPT creates a controlled plasma arc within a vertical well, generating a tremendous amount of heat for a fraction of a second, while the subsequent high-speed hydraulic impulse wave emitted is strong enough to remove any clogged sedimentation from the perforation zone without damaging the steel casing. The series of impulse waves also penetrates deep into the reservoir, which re-opens reservoir permeability for up to a year per treatment.

But to determine what new EOR technology is going to steal the limelight in the coming months and years, we follow the progress of the EOR leaders and the big strategic investors, such as Russian billionaire Roman Abramovich.

The market leader in extracting oil and gas using CO2 enhanced oil recovery processes is Denbury Resources, which many will agree is a company that offers investors long-term value because of its focus on efficiency.

As for Abramovich, he is a metals magnate who also happens to own the Chelsea football club and is the 143rd wealthiest person in the world, worth about $9 billion according to Forbes. He is the main owner of UK-registered Millhouse LLC, a private investment company whose assets have included major stakes in Sibneft, which is now Gazprom Neft. In 2005, Millhouse sold a 72 percent stake in Sibneft to Gazprom for more than $13 billion.

In fact, PPT first caught our eye back in February, when Abramovich, who has a track record of very strategic investments, moved to invest $15 million in a Houston-based company called Propell Technologies Group, Inc. Until Abramovich brought it to the world’s attention, few had probably ever heard of Propell, which has a wholly-owned subsidiary called Novas Energy U.S.A., the licensee and developer of the PPT technology.

The subsidiary licenses the technology from a venture capital-backed Russian energy technology company named Novas Energy, and the Russian connection makes sense here. After all, PPT has been very successfully employed in both Russian producer and injector wells. More than anything, this Russian connection speaks volumes about the efficiency of this advanced EOR technology: Russia doesn’t have draconian fracking regulations pressuring companies to use environmentally friendly technology. What this means is that it’s cost effective; otherwise Russians wouldn’t be using it.

Beyond the technology itself, if we follow Abramovich further we get a glimpse of what’s about to happen on the U.S. EOR scene. In February, Abramovich took a stake with Propell, which was made through a Cyprus-registered company called Ervington Investments Limited. The February deal saw Propell raise $5 million from the sale of 1,525,424 shares of a preferred stock at $3.28 per share. The deal also gave Ervington the option to invest an additional $9.75 million, under the same terms, which it took advantage of on July 6. This Abramovich investment will be used to acquire oilfields with the overall aim to employ the new technology to increase output.

You have to read between the lines here. Abramovich doesn’t do anything small. He’ll get the infrastructure in place and then look to acquire a significant position in the U.S. oil sector at today’s fire sale prices to employ this EOR technology.

If OPEC keeps oil prices below $100 for some time to come, the smart investor will be looking for something that captures long-term value, which means focusing on operational efficiency.

So while many might assume that EOR is now too expensive to be supported during an oil price slump, a little counter-intuition tells us that this will change in the immediate future and investors will start looking at companies who are actually behind this new technology or the companies who are focusing on using this new technology, whether it be CO2 EOR or PPT, to get more out of their oilfields.

Over the long-term EOR makes production cheaper. And as Chesapeake Energy’s Jason Pigott succinctly put it: “We can’t control prices, so we have to focus on how much it costs to get it out of the ground.”

When low oil prices close doors, technology steps in to reopen them, and certainly innovation will drive the next U.S. oil boom, and the latest advancements are already commercially viable. The door has been re-opened.

What OPEC knows is this: The U.S. has over 21 billion barrels of oil that could be economically recovered with today’s EOR technologies. And according to figures from the U.S. Department of Energy and the Western Governors Association, further advances in this technology could cause that figure to double.

Source: Oilprice.com

deepwater offshore oil is going to remain at a cost disadvantage to landbased and as long as new technology keeps the land fields producing, the incentive to develop offshore will be stifled.

What are you setting yourself up for? The CONNACO PHILLIPS ANNOUNCEMENT made two days ago? You are getting slow old man :wink:

[QUOTE=AB Murph;165851]What are you setting yourself up for? The CONNACO PHILLIPS ANNOUNCEMENT made two days ago? You are getting slow old man ;)[/QUOTE]

what was the announcement? that ConocoPhillips is going “all in” for shale oil and then is going to export it all?

[B]ConocoPhillips CEO Bets Farm on Shale, Sees Oil Rebound[/B]

by Bradley Olson

April 8, 2015 —

ConocoPhillips, one of the world’s largest shale producers, sees crude prices rising by the end of the year, bolstering the company’s growing wager on U.S. oil.

Chief Executive Officer Ryan Lance is staking a big part of the company’s future on shale, pledging to spend 50 percent more over the next three years primarily in the U.S. and Canada even as crude prices fell by more than half.

ConocoPhillips joins Exxon Mobil Corp. in making wells from Texas to North Dakota a central focus as oil companies adapt to market conditions that require the ability to ramp up or cut back drilling swiftly. Relying on flexible, low-cost opportunities that can stop and start on a dime will be critical as U.S. drillers become the world’s swing suppliers, Lance said Wednesday in an interview at Bloomberg’s headquarters office in New York.

“This is my fifth rodeo,” Lance said of his previous experience with energy downturns. “We’re going into a world that’s going to be characterized by lower, gradually rising prices and a lot of volatility.”

The shift for ConocoPhillips away from billion-dollar projects that take years or decades to complete is rooted in a belief that crude prices could gyrate wildly for years to come. Any price recovery in the near term will be modest, he said, as slowing U.S. production helps push up prices to between $70 and $80 a barrel within three years.
Exxon’s Plan

Exxon CEO Rex Tillerson said in March that the global energy giant will double the amount of oil it pumps from U.S. shale fields during the next three years, even as it moves more cautiously on investments in big projects elsewhere. Decades after quitting many U.S. fields to pursue bigger reserves from the Middle East to the North Sea, Exxon now sees its U.S. assets as its most reliable cash engines.

ConocoPhillips is focusing on North America because it has among the lowest costs for operations among the 20 major producers in the region. The company can turn a profit on its U.S. and Canadian wells with prices of $50 a barrel or less, according to analyses by consultants ITG Investment Research, Wood Mackenzie Ltd. and Rystad Energy that were cited in a company presentation Wednesday.

The third-largest U.S. oil producer behind Exxon and Chevron Corp. plans on spending about $11.5 billion a year globally to develop oil and gas resources, and set a goal of reducing costs by $1 billion by the end of 2016.
Shale Viability

The budget plan amounts to a vote of confidence in the future of North American oil as some have questioned the viability of prospects in Texas and Canada with crude trading at about $50 a barrel. The companies shares, which have fallen 6.2 percent this year, dropped 1.5 percent to $64.81 at the close in New York Wednesday after oil had its biggest decline in two months.

Lance was adamant in a presentation to investors Wednesday that ConocoPhillips isn’t for sale. That guidance came on the same day that rival Royal Dutch Shell Plc announced a deal to buy BG Group Plc for $70 billion, the biggest energy acquisition in a decade.

“Not just no, but hell no,” Lance said at the company’s analyst meeting in New York.

Three major energy acquisitions have been announced since November, totaling more than $115 billion including debt, according to data compiled by Bloomberg.
Unlikely Wave

Even so, a wave of consolidation comparable to the one that transpired in the 1990s, when the biggest publicly traded oil companies joined in a series of megamergers, is unlikely in the current market, Lance said in the interview.

Many oil producers are trading at valuations that still reflect a price more like $80 a barrel, meaning most acquisitions would be a more expensive way for ConocoPhillips to increase its oil and gas resources than developing existing assets, he said.

Assets “are still pretty pricey,” he said. For a lot of distressed companies that might be seen as opportunities, the problem is that their properties “aren’t very good. There’s a reason why they’re distressed.”

The company is looking for opportunities, constantly evaluating the operations and profits of competitors, but hasn’t yet seen the right price, Lance said. ConocoPhillips was among the companies that looked at buying Whiting Petroleum Corp., a producer in North Dakota, before judging the prospect too expensive, he said.
Export Ban

Lance, who is leading a group of oil producers in advocating for an end to the U.S. ban on most crude exports, said there is only a slight chance such a change will make it through Congress this year. The company is pushing for an end to the restrictions at least by 2017, he said.

ConocoPhillips received approval from the U.S. Commerce Department “a couple days ago” to export processed condensate, a type of ultra-light oil produced in South Texas, Lance said. The letter will allow the company to export the fuel after some processing that qualifies it as a refined product.

“The export ban is an anti-consumer policy,” Lance said. If the policy doesn’t change, “it’s going to be a constraint on the industry.”

No, he was talking about this:

ConocoPhillips Announces Dividend Increase and Reductions in Future Deepwater Exploration Spending

[QUOTE=AB Murph;165851]What are you setting yourself up for? The CONNACO PHILLIPS ANNOUNCEMENT made two days ago? You are getting slow old man ;)[/QUOTE]

finally found what you were referring to and boy is it a doozey of bad news for ENSCO!

[B]ConocoPhillips cancels Ensco drillship[/B]

Written by Melissa Sustaita Friday, 17 July 2015 08:41

Houston-based ConocoPhillips terminated its order for the recently delivered Ensco DS-9 deepwater drillship in concurrence to its plans to reduce future capital expenditures in deepwater exploration.

The Ensco DS-9. Image from Ensco.

The Ensco DS-9 newbuild was scheduled for delivery in the Gulf of Mexico in late 2015 to begin drilling, as part of a three-year contract set for 4Q 2015.

Under the terms of the agreement, ConocoPhillips is subject to a termination fee that represents up to two years of contract day rates. Details of the termination are under discussion, but the company expects to take a special item charge for termination in the 3Q 2015, ConocoPhillips said in a statement.

According to Ensco, ConocoPhillips is obligated to pay Ensco monthly termination fees for two years equal to the operating day rate of approximately US$550,000, which may be partially defrayed should Ensco re-contract the rig within the next two years and/or mitigate certain costs during this time period while the rig is idle and without a contract. ConocoPhillips is also contractually obligated to reimburse certain costs that Ensco incurs due to the termination of the contract for ConocoPhillips’ convenience.

"Since the start of the oil and gas price downturn last year, we have moved decisively to position ConocoPhillips for lower, more volatile prices by exercising capital flexibility and reducing operating costs across our business,” said Ryan Lance, ConocoPhillips chairman and CEO. “Our decision to reduce spending in deepwater will further increase our capital flexibility and reduce expenses without impacting our growth targets. This strengthens our ability to achieve cash flow neutrality in 2017 even if lower commodity prices persist.

ConocoPhillips noted that although the company achieved notable success in its deepwater program in the Gulf of Mexico Lower Tertiary play, as well as offshore Senegal, a reduction would be made in the number of future deepwater exploratory prospects. The company has also decided to reduce exposure to programs with greater resource risk and longer cycle times.

Ensco and ConocoPhillips entered into the three-year contract for the Ensco DS-9 in March 2014. At that time, the drillship was still under construction at the Samsung Heavy Industries Shipyard in South Korea.

The Ensco DS-9 is a Samsung GF12000 hull design, 755ft by 125ft, with DP3 station-keeping capability, featuring retractable thrusters. It is equipped to work in water to 10,000ft water depth, upgradable to 12,000ft, and drill to 40,000ft TD.

If we don’t see crude prices rebound this year, I really have to wonder how many more drillships and rigs are going to get the axe from the majors?

What’s bad for the goose is bad for the gander. Those of us lucky enough to still have jobs are going to have a tough time seeing any promotions or raises any time soon with this high supply and lowered demand of licensed and experienced mariners. I hope everyone’s happy where they are right now because no one’s going anywhere for a while.

We’re seeing an influx of former oil patch guys coming to tugs up in the Northeast.

I wonder if they are going to keep a marine crew on DS-9 since they are still getting full day rate.

[QUOTE=PaddyWest2012;166021]What’s bad for the goose is bad for the gander. Those of us lucky enough to still have jobs are going to have a tough time seeing any promotions or raises any time soon with this high supply and lowered demand of licensed and experienced mariners. I hope everyone’s happy where they are right now because no one’s going anywhere for a while.[/QUOTE]

Tug companies are still workng hard to hire enough good experienced tug masters. While I would not say that there is any shortage of tugboat guys with the right license, there is no surplus of guys who are good. Seattle is knee deep in resumes from the Gulf, but they are not hiring any of those guys.

      • Updated - - -

[QUOTE=Tugboater203;166027]We’re seeing an influx of former oil patch guys coming to tugs up in the Northeast.[/QUOTE]

Do you mean former tug guys that went to the Gulf, but are now coming back to NY?

How would a Gulf mariner without Master of Towing or recency be able to get a job in NY?

They come on as training mates/ab’s, few of the make the cut. Some obviously do though. Some have old toars with no experience etc.

Most companies see them as money chasers who were laid off for not being top talent or troublemakers, that is not necessarily the case as why people were laid off but some people see it that way. They’re not investing tons in those guys but they are hiring some to plug holes. They’re proceeding with caution on them as who’s to say they won’t run to the Gom as soon as there’s demand and money there again?

I am one of those guys with a TOAR. I have worked in the commercial fishing fleet in AK for 25 years, sailing as captain since 94.
I am tired of the fishing and long commute to work and looking to transition to tugs on the east coast (I live in MA)
I would be taking a pay cut, that is a given, but I am interested in the change of scenery/lifestyle.
Any suggestions on where to look?
Thanks!

Why not start out with whatever outfit you were with when you got your TOAR signed off?

Are companies actually hiring guys with just a TOAR? Why?

I would not want anyone on my boat that does not have Master of Towing printed in his MMC.

[QUOTE=tugsailor;166076]Are companies actually hiring guys with just a TOAR? Why?

I would not want anyone on my boat that does not have Master of Towing printed in his MMC.[/QUOTE]

When I got my TOAR and 500 ton Mate the Boston REC refused to print Mate of Towing on my license. They were in a pissing match with the companies that felt the same way you do. I was told “it’s legal to run with a 500 ton and a TOAR so we’re not giving you Mate of Towing.” I wound up going to Charleston REC and getting it a few months later (had to pay the endorsement fee) but that was after I was passed up for a job at Vane Brothers for not having it.

[QUOTE=tugsailor;166076]I would not want anyone on my boat that does not have Master of Towing printed in his MMC.[/QUOTE]

Also, I agree completely. I’m surprised companies don’t lobby to change the law.

While we’re at it, why don’t we let guys drive big rigs with just a regular license and assessments signed off by an experienced driver? No one ever lies or forges anything…

[QUOTE=Capt. Phoenix;166086]Also, I agree completely. I’m surprised companies don’t lobby to change the law.

While we’re at it, why don’t we let guys drive big rigs with just a regular license and assessments signed off by an experienced driver? No one ever lies or forges anything…[/QUOTE]

I am hearing about a lot of pencil whipped TOARs. I have seen a few guys with zero towing knowledge that obviously got their TOARs pencil whipped. Managers at two companies have asked me to pencil whip TOARs for some of their fair haired boys.

Frankly, I suspect that the majority of guys coming to tugs from outside the tug and barge trade have pencil whipped TOARS.

[QUOTE=tugsailor;166104]

Frankly, I suspect that the majority of guys coming to tugs from outside the tug and barge trade have pencil whipped TOARS.[/QUOTE]

You suspicions are typically correct. The USCG ought to look into the guys signing dozens and dozens of TOAR’s.

The good thing is TOAR or not, higher end companies are going to put someone through their paces for a few months, even if they know what they’re doing, before allowing them to stand a watch. If they have no clue it will be years.

[QUOTE=z-drive;166108]The good thing is TOAR or not, higher end companies are going to put someone through their paces for a few months, even if they know what they’re doing, before allowing them to stand a watch. If they have no clue it will be years.[/QUOTE]

Except the good companies already did that before there was the new towing license scheme. It was created to keep the bottom of the barrel companies from using unqualified people to do the job.

isn’t that what I said?