More than $150 Billion of Oil Projects Face the Axe in 2015

Statoil-contracted rigs COSL Pioneer, Scarabeo 5 and Songa Trym were initially suspended until the end of the year from 8 October, 5 October and 20 November, respectively. As of today, Statoil notes the COSL Pioneer (pictured) will be suspended for an additional seven and a half months. image: COSL

By Ron Bousso

LONDON, Dec 4 (Reuters) - Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.

As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.

Now the outlook for onshore and offshore developments - from the Barents Sea to the Gulf or Mexico - looks as uncertain as the price of oil, which has plunged by 40 percent in the last five months to around $70 a barrel.

Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

But with analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said.

“At $70 a barrel, half of the overall volumes are at risk,” he said.

Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.

Of those 20 billion barrels, around half are located in Canada’s oil sands and Venezuela’s tar sands, according to Nysveen.

ASSESSING THE ECONOMICS

Geographically, the projects on the balance are widespread.

Chevron’s North Sea Rosebank project is among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics, analysts said.

“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go,” said Bertrand Hodée, research analyst at Paris-Based Raymond James. He estimates a development cost of $10 billion for Rosebank, with potential reserves of 300 million barrels - meaning the Chevron would only recoup $33 a barrel.

Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years. Chevron’s Rosebank project has already been delayed for several years.

In response to a question from Reuters, the company said "the Rosebank project is in the Front End Engineering and Design phase. The review of the economics and the additional engineering work is progressing… It is premature to make any statements on an FID date."
Hodée said any offshore project with a development cost above $30 a barrel would most likely be put on hold in current oil prices.

Norway’s Statoil this week said it had postponed until next October – a six-month delay – a decision to invest $5.74 billion in the Snorre field in the Norwegian Sea as its profitability was under threat.

New oil fields typically require four to five years to be developed and billions before the first drop of oil is produced.
Any cutbacks in oil production bodes ill for international oil companies that are already struggling to replace depleting reserves as exploration becomes harder and discoveries smaller. It also points to tighter supplies by the end of the decade.

LEAST LIKELY

Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.

Shell’s liquefied natural gas (LNG) project in Canada’s British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment, analysts said. According to research by Citi, the project requires oil at $80 a barrel to break even.
Royal Dutch Shell’s chief financial officer Henry Simon indicated in October that it was “less likely” to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.

Asked by Reuters what the company’s current thinking was, a Shell spokesman would not comment on “internal decision-making.”

Even in the Gulf of Mexico, one of the most attractive oil production areas in the world, projects are facing challenges.

BP last year put on hold a decision on its Mad Dog Phase 2 deep water project in the Gulf of Mexico after its development costs ballooned to $20 billion and the oil major is now expected to further delay an investment on the field’s development.

“BP were talking positively about bringing it back, but now it may be put on hold,” BMO Capital Markets analyst Iain Reid said.

BP’s chief financial officer Brian Gilvary however said in an analysts briefing in October that he expected Mad Dog Phase 2 to be sanctioned in the first quarter of 2015.

Statoil’s Johan Castberg field in the Barents Sea, which was expected to get its FID in 2015, seems unlikely to get the go-ahead at the moment given it has an estimated project cost of $16-$19 billion, Hodée said.

Statoil said that the final project design is due in the summer of 2015. Its giant Johan Sverdrup field in the North Sea is still on track for development with a price tag of $32.5 billion. (Additional reporting by Oleg Vukmanovic in Milan and Balazs Koranyi in Oslo; Editing by Sophie Walker)
I 2014 Thomson Reuters, All Rights Reserved[/I]

right on top of that bad news is this on RigZone

[B]Statoil Could Pay High Cost for Response to Exploration Failure[/B]

by Reuters Balazs Koranyi and Stine Jacobsen

Monday, December 01, 2014

OSLO, Nov 30 (Reuters) – After the failure of its risky exploration strategy this year, Norwegian oil firm Statoil is cutting costs as fast and deep as it can to preserve cash for dividends – and may be jeopardising future production in doing so, industry insiders say.

Statoil took a big gamble by committing major resources to what it hoped would be new discoveries in Angola, the Norwegian Arctic and the U.S. Gulf of Mexico. They all failed, leaving two Tanzanian gas fields its only major finds in 2014.

With no new prospects to drill, and a 35 percent drop in the price of oil since June, the company is now paying hundreds of millions of dollars to cancel or suspend a third of its exploration fleet in order to find the cash it needs to pay its dividend, which so far this year equalled nearly all of its 30.9 billion crown ($4.46 bln) net profit.

“They have gambled and…bet on the wrong horses,” says Hilde-Marit Rysst, the head of labour union SAFE, which has thousands of employees with Statoil and its contractors.

[B]“They have spent too much and made too many commitments.”[/B]

Statoil’s problems are several but the root of them can be simply put: it spent too much money on long drilling contracts in exploration areas before ensuring there would be enough work. Additionally, it took out those contracts at the top of the market, paying record day rates to secure capacity.

The company also introduced a quarterly dividend in 2014, bowing to pressure from investors, and put extra burden on cash flow already strained by years of heavy investments.

The dividend increase came even as its production cost per barrel jumped by a quarter since 2009, while oil prices have fallen. Analysts estimate Statoil needs oil to rise back to $110 per barrel for it to finance investments and dividends from its cash flow.

Oil prices recently slumped to fresh lows around $71 a barrel after OPEC decided not to cut production despite a huge oversupply in world markets. Analysts say Statoil’s cash flow at this price is already negative before dividends.

Compounding the company’s difficulties, Statoil is without a permanent chief executive. Helge Lund left in October for rival BG Group – where his pay could be almost 10 times higher – and Statoil is currently under the helm of former marketing, processing and renewable energy chief Eldar Saetre.

[B]“Double Error”[/B]

At the start of the decade Statoil revamped its exploration strategy, faced with reserves that were starting to dwindle.

Instead of small, safe projects, the company went after what exploration chief Tim Dodson called “high impact prospects” around the globe, boosting spending and taking on more risk.

The strategy advocated by Dodson – a 29-year veteran of Statoil – worked for several years and the company made big finds in Brazil, Canada, Norway and Tanzania.

With its failure to make big finds this year, Statoil has taken six rigs out of use, mainly in Norway and also Angola, though it says some of these are short-term. Exiting Angola alone cost it $350 million.

The price of many still-operational rigs is eye-watering. One in Tanzania costs more than $700,000 a day to run even as charter rates have fallen this year to below $400,000 per day.

“They chartered these vessels at the peak of the cycle and they’re cancelling contracts at trough of the cycle. It’s a double error,” said John Olaisen, an analyst at brokerage ABG.

“They’re panicking … They should leverage up to avoid cutting too much.”

Less exploration will cut Statoil’s reserves while reduced drilling on existing fields could cut into recovery rates and its output, analysts said. Spending cuts elsewhere, particularly maintenance work on mature fields, could also affect its output.

[B]No Dividend Cut[/B]

Though under pressure, the company will stand by its dividend payments, say analysts who met Saetre on Thursday.

“Mr Saetre said he would consider a great many options before he cuts the dividend,” said Swedbank analysts Teodor Nielsen, who attended the meeting. “We got confirmation that the dividend is a top priority.”

Even with such generous dividends still in prospect, the Statoil stock is down 4 percent in the past year. Over the past three years, it is down by 7 percent, underperforming all majors, including BP, which was weighed down by the cost of its Macondo spill.

BP, Shell, ExxonMobil and Total are all cutting costs, laying off staff and selling assets to cope with lower oil prices and pressure from investors for higher returns after their 10-year spending spree.

But Statoil is cutting more than the others because its costs are so much higher.

Statoil’s Dodson declined to be interviewed and the firm said it would announce 2015 exploration plans in February.

“They have spent and spent but should have thought more about the long term,” said Leif Sande, the head of labour union Industri Energi.

“In past cycles they always said they would do better next time, but when (the oil price) goes up again they forget about that.”

WOW! How high they fly when the times are so good but that only means the crash, when it comes, is so much worse because the fall is such a plummet! I really would have thought the Norskie’s are a more conservative bunch and not prone to wild speculation…I guess I am wrong!

why the investors are being treated so generously it what really amazes me! Why should they too not be made to share in the pain? WHAT THE FUCK?

mark my word each and everyone of you overpaid seagoing pickup truck drivers, and hole makers…these stories show that 2015 will be a very ugly year for working in the offshore…DEEP CUTS ARE COMING! Boats and rigs will stack as the majors cut their bloated E&P spending. $1000+/day is going to go away. Those numbers can no longer be sustained and on top of a wage rollback will be layoffs. There will also be bankruptcies for offshore operators who hold too much debt. This has all happened before and there is no reason whatsoever it can’t happen again next year!

how the rest of the maritime industry reacts the downturn remains to be seen but it will be nothing like in the offshore sector…y’all are headed for a world of pain!

Regardless of how hard you got your dick slammed in the door at Otto candies and noble, the fact that you gleefully talk about the real possibility of people with families loosing their jobs is beyond fucked up.
So keep swimming upstream like a salmon with two fingers in the air. I hope some national geographic camera man is there when a grizzly bear bites your bitter old ass in half.

[QUOTE=Traitor Yankee;149150]Regardless of how hard you got your dick slammed in the door at Otto candies and noble, the fact that you gleefully talk about the real possibility of people with families loosing their jobs is beyond fucked up.
So keep swimming upstream like a salmon with two fingers in the air. I hope some national geographic camera man is there when a grizzly bear bites your bitter old ass in half.[/QUOTE]

No glee…just pointing out a hard reality. You can remain with your head up your ass though and believe all will be just fine

For the record though, I do believe wages went too high in the offshore. Where more than half the threads in this forum are about people clamoring to get into that part of the industry shows how high it got. Wages offshore should be more on par with wages in the rest of the workboat industry such as towing. That sector requires a very high skillset which has not gotten rewarded financially…was this really fair? There should be a degree of equality for all who work on vessels as opposed to a subsector who get rewarded like royalty and all the rest.

sorry, but my opinion whether you like it or not. Reality can be very hard to face.

      • Updated - - -

posted these charts last week and will post them again to show how things have changed in just a few days

Yeah the last three of these I’ve been through Turdwater was gonna buy everybody for pennies on the dollar. I’ve seen more “mergers” “restructuring” and going out of business sales in good times than bad. I’d rather take a bit of a paycut in the short term than lose my house. If you’ve been working down here for a while you know the next bust is around the corner and to save accordingly. If a guy making $700-$1000 a day can’t absorb $100 paycut he may need to rethink his lifestyle. A union would be useless in this situation. Joe Boss would say 5% across the board and everyone keeps their jobs and benefits. If not 80% of the crews get the chop and I send everything overseas.

[QUOTE=Fraqrat;149153]Yeah the last three of these I’ve been through Turdwater was gonna buy everybody for pennies on the dollar. I’ve seen more “mergers” “restructuring” and going out of business sales in good times than bad. I’d rather take a bit of a paycut in the short term than lose my house. If you’ve been working down here for a while you know the next bust is around the corner and to save accordingly. If a guy making $700-$1000 a day can’t absorb $100 paycut he may need to rethink his lifestyle. A union would be useless in this situation. Joe Boss would say 5% across the board and everyone keeps their jobs and benefits. If not 80% of the crews get the chop and I send everything overseas.[/QUOTE]

Your math doesn’t work Fraq…do you mean 50% instead of 5%?

Personally, I think y’all will get off damned lucky if it bottoms out at a 25% cut in wage rates and a 25% cut in total workforce

I guess we’ll see. It’ll beat standing around the hall drinking free coffee and prayin for a QMED job to open up.

[QUOTE=Fraqrat;149158]I guess we’ll see. It’ll beat standing around the hall drinking free coffee and prayin for a QMED job to open up.[/QUOTE]

so what number did you mean?

also, I need to point out that Joe Boss can’t just send everything overseas to work. Why do you think he’d have a viable market there for his vessels when global E&P projects are all getting axed or at least only postponed? Those who have built only on speculation believing that there will be high paying work for their new boats without contracts in hand are certainly in peril. Those who’s existing contracts are coming up for renewal are also in peril if the equipment isn’t paid off yet. In every downturn in the offshore, those companies that are overly leveraged are going to be the first to fall when the cash flow dries up. Some have said that HGIM is one of those as I would imagine is HOS. In the case of ECO, does Gary pay mainly cash for newbuilds or is he leveraged heavily as well? Little companies with big building plans underway could be in even worse condition to survive. Companies like Jackson and Adriatic.

One other shoe that could drop is the operators simply pulling the plug on existing charters and paying the lump sum to get out from under their obligations. Statoil is doing that already but there hasn’t been too much in the news about other majors paying the penalty to cut and run. If that becomes the norm then the boat owners will use the cash to paydown debt first and tie up all the out of work boats rather than keeping crews aboard for spot work. They could be stacking up in the Bayoo 5 deep before all this is over yet.

I guess the key question is where oil bottoms out at and where does it settle? If we go to $50 or less, expect everything new in the GoM to go into the freezer. Exploration and production both. Of course, a new major war could suddenly break out in Iraq against ISIS and oil shoot back up to over $100/bbl but face the fact that the US doesn’t want a huge new war and the economy is loving $70-/bbl oil. I would not expect the Administration to do a damned thing to help oil prices nor should they… The players in the oil game made their bed and now they must sleep in it.

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Adjusted for inflation, I make less now than I did 25 years ago. Since I had to spend $25,000 and months of my time over the last few years on STCW and other courses, my wages are far lower than they should be. Its not that Gulf wages have gotten too high, its that the rest of our wages are too far too low. Most of us are long over due for a significant raise.

So the real question is when to but drilling stock?

[QUOTE=tugsailor;149160]Adjusted for inflation, I make less now than I did 25 years ago. Since I had to spend $25,000 and months of my time over the last few years on STCW and other courses, my wages are far lower than they should be. Its not that Gulf wages have gotten too high, its that the rest of our wages are too far too low. Most of us are long over due for a significant raise.[/QUOTE]

So true. 40+ years ago $6/hour / $1,000 a month / $12,000 a year, was a good salary. Now it is poverty level.

If only everyone’s wages kept up with a congressman’s wages.

[QUOTE=z-drive;149161]So the real question is when to but drilling stock?[/QUOTE]

certainly not yet anyway

one thing I am wondering about is the stock of the majors or biggest independents…haven’t looked at them lately but if they has been heavily corrected to the 35+% level then there definitely is some potential to make money in those. The unfortunate reality for offshore is all the big oil is in deepwater but the cost to find and produce that is way higher than out of some desert or under a prairie plain.

My company has a really nice sport fish that they take customers out on. Heard from what I consider a reliable source, that Gary only takes bankers out on his. TIFWIW.

No need to worry.

Now that McCain has a GOP Senate, here comes the promised Jones Act assault.

Once that is passed, Obama is too stoopid to veto it. Because a repeal of the Jones Act, means “business” will save “$1 Billion…”

Of course the economic effect of lost US living wage jobs (like ours) isn’t mentioned, but what the heck, why not have Chinese crews on the Mississippi and manning every OSV and rig in the GoM all the tankers, barges and box boats to AK & HI $1000 a day? $500 a day ? $300 a day ?? Plus benefits ??? Pffffffft

It blows, but he’s getting ready to piss on the campfire and this time he has a full bladder. You all better start screaming’ to your local papers and representatives cause here it comes. So much for the working man.

I ain’t worried chief…

McCain is taking over as chair of the Senate Armed Services Committee and John Thune is going to be the new chairman of the Commerce, Science and Transportation Committee on which John McCain does not even sit.

Unless McCain has some incredible heretofore unseen power or has photos of someone fucking a pig, he does not have standing to introduce any legislation to overturn the Merchant Marine Act of 1920. Remember that the majority of both Republican and Democrat members of the Senate and House are pro Jones Act even if miserable old me like McCain and Chuck Grassley hate it with venom. As they say…“haters gonna hate”!

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[QUOTE=c.captain;149163]one thing I am wondering about is the stock of the majors or biggest independents…haven’t looked at them lately but if they has been heavily corrected to the 35+% level then there definitely is some potential to make money in those. The unfortunate reality for offshore is all the big oil is in deepwater but the cost to find and produce that is way higher than out of some desert or under a prairie plain.[/QUOTE]

well did some checking on Exxon-Mobil, Shell, Chevron and BP. Of them, only BP seems to have taken a hit since the price of oil turned down. Will check in the big independents soon and report back.

Still amazes me that a staunch advocate for the US military like McCain wants to torpedo the Merchant Marine…mind boggling. I feel like I know why he is that way. Still gets to me.

[QUOTE=Slick Cam;149183]Still amazes me that a staunch advocate for the US military like McCain wants to torpedo the Merchant Marine…mind boggling. I feel like I know why he is that way. Still gets to me.[/QUOTE]

and a Navy man too boot! Without a merchant marine and auxiliary ships converted from merchant ship hulls, his grandfather’s and father’s Navy in WWII would never have been able to rout the Japanese from the Pacific as we did.

When I heard how he wanted to gut the Jones Act, I too was in utter disbelief. How could he think the way he does?

you know, if both Admirals McCain were alive today, I don’t believe they would want to deal with the man who became Senator McCain?

he was also a lousy pilot who lost two planes in training and then lost his A-4 in Nam disobeying standing orders that when a fire control radar locked on your plane, you were to abort the mission and take evasive action. Maverick couldn’t do that and went into the target anyway and we know what happened right afterwards. A Navy plane destroyed and a pilot captured!

Helluva job you did there Johnny!

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I dont like Senator McCain either but I wouldn’t shit on Aviator McCain’s record. You wernt there and you dont know what happened. As far as I am concerned the years he spent being tortured more than made up for any mistakes he made while in the cockpit. Maybe instead of talking shit you could start holding your tongue once in a while.