Shouldn't say that this comes as a huge surprise

considering how rates and costs have been going in the offshore

[B]Kemp: Oil Industry Starts to Squeeze Costs, Wages[/B]

LONDON, Jan 30 (Reuters) – Cutting the cost of everything from salaries and steel pipes to seismic surveys and drilling equipment is the central challenge for the oil and gas industry over the next five years.

The tremendous increase in exploration and production activity around the world over the last ten years has strained the global supply chain and been accompanied by a predictable increase in operating and capital costs.

When oil and gas prices were rising strongly, petroleum producers and their contractors could afford to absorb cost increases.

But as oil and gas production have moved back into line with demand, and prices have stabilised, the focus is switching once again to cost control.

“Operational excellence,” a euphemism for doing more with less, is back in fashion and set to dominate industry thinking for the rest of the decade.
Spending Discipline[/B]

Paal Kibsgaard, chief executive of Schlumberger, one of the largest service companies, has been emphasising “smart fracking” and other ways to raise output and cut costs for two years.

Speaking as long ago as March 2012, Kibsgaard warned: “In the past ten years, exploration and production spend has grown fourfold in nominal terms, while oil production is up only 11 percent.”

“In this environment, we believe our customers will favour working with companies that can help them increase production and recovery, reduce costs, and manage risks,” he added.

Schlumberger’s website and those of its main competitors Halliburton and Baker Hughes all prominently feature technologies and processes intended to cut costs, such as dual-fuel diesel-natural gas drilling and pumping engines.

It is just a small example of profound industry shift from an emphasis on increasing production to controlling spending.

Issuing a shocking profit warning on January 17, Royal Dutch Shell 's new chief executive pledged to focus on “achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.”

On Thursday, the company cut its capital budget for 2014, and announced it was suspending its controversial and expensive Arctic drilling programme.

Shell is catching up with peers like BP and Chevron , as well as perennially tight-fisted Exxon, in promising to stick to a tighter spending regime and return more value to shareholders.

The problem is not unique to oil and gas producers. Miners like BHP Billiton, Rio Tinto and Anglo American have all axed projects and pledged to tighten capital discipline after costs spiralled out of control.
Megaproject Madness[/B]

The worst over-runs have been on so-called megaprojects - investments costing over $1 billion, sometimes much more. In fact, the bigger project, the worse the cost overruns and delays have tended to be.

Pearl, Shell’s enormous gas to liquids project in Qatar, is now regarded as a success, but was seriously delayed and went wildly over-budget.

Other megaprojects like Chevron’s Gorgon LNG in Australia and the Caspian oil field Kashagan - which is being developed by an industry consortium including ENI, Shell, Total, Exxon and Conoco - have been similarly late and bust their original cost estimates.

It is convenient, but wrong, to blame poor project management for all the days and cost overruns. Some decisions have been flawed, but on projects of this size and complexity, at least some errors are to be expected.

Megaproject managers in 2013 were not, on the whole, worse than in 2003. Unfortunately, the economic and financial environment has become much less forgiving. When projects start to go wrong it has proved much harder to limit the delays and damage to the budget.

By their nature, megaprojects are so big they strain the global construction and engineering supply chain and pool of skilled labour. Megaprojects create their own adverse “weather,” pushing up the cost of specialist labour and materials worldwide.

Attempting to complete even one or two megaprojects with similar characteristics at the same time can strain the global supply chain to the limit. Attempting to complete several simultaneously is a recipe for severe cost escalation and delays. The multi-commodity boom over the last decade created a “perfect storm” for the megaproject industry.

While there is not an exact overlap, massive offshore oil fields like Kashagan, LNG facilities like Gorgon, floating LNG platforms like Prelude (destined for Australia), gas to liquids plants and even simple onshore shale plays like North Dakota’s Bakken, are all competing for the same limited pool of skilled engineers, construction workers and speciality steels.

The result has been a staggering increase in costs and wages. And once a project falls behind, there is no slack in the system to hire extra workers or procure additional or replacement components to get it back on track.

[B]Supply Chain Responds[/B]

Rampant inflation and delays have been worst on megaprojects because they require a much higher proportion of very specialist components and the supply chain is least-elastic.

But even simpler projects like shale oil and gas have been plagued by a rapid rise in costs as they stretch the availability of drillers, rigs and pressure pumping equipment, as well as fracking sand, fresh water and guar gum.

Between the end of 2003 and the end of 2013, the number of employees engaged in oil and gas extraction in the United States increased by 70 percent, from 117,000 to 201,000, according to the U.S. Bureau of Labor Statistics.

Soaring demand for specialised workers has produced an entirely predictable surge in wages.

Employees in North Dakota’s oil, gas and pipeline sectors were taking home an average monthly salary of $9,000 in the fourth quarter of 2012, and staff at support firms were making an average of more than $8,000, according to the latest data from the U.S. Census Bureau.

Their colleagues in Texas were doing even better: average salaries in the oil and gas extraction industry were over $15,000 per month, and $11,000 in pipeline transportation.

That made them some of the best-paid employees in the United States. Only financial services employees in New York ($28,000), Connecticut ($25,000), California ($17,000) and a few other states were routinely making more.

Rising wages and other prices were the only means to ration scarce workers and raw materials. But they were also the only way to attract more workers and supplies into the industry.
Extreme Cycles[/B]

It takes a long time to train new drillers, petroleum engineers and construction specialists, and give them the experience needed before they can assume positions as experts and team leaders.

Similarly, the expansion of specialist construction facilities and manufacturing firms for items like oil country tubular goods takes years; and companies will only expand or enter the industry if they are convinced the upturn in demand will be durable rather than fleeting.

While the boom in oil and gas prices dates from around 2003 or 2004, the big expansion of exploration and production spending started much later, around 2006 or even 2007, and it has only filtered down to the labour pool and the rest of the supply chain much more slowly.

It is the long delay between an increase in demand for oil and gas, an increase in production and exploration activity, and an expansion of the whole supply chain, which explain the deep cyclicality of the petroleum industry and mining.

Extreme cyclicality is hard-wired into oil, gas and mining markets. Companies like Shell which have tried to ride through the cycle by ignoring short-term price and cost changes to focus on the long term have eventually been compelled by their investors to fall into line.

In the next stage of the cycle, oil and gas prices are set to remain relatively high but are unlikely to rise much further. For exploration and production companies, increasing shareholder value therefore means increasing efficiency and bearing down on costs, including compensation and payments to suppliers and contractors.

For the supply chain and oil-industry workers, capacity and the availability of skilled labour will continue to expand, while demand is set to stabilise or taper off. Major oil companies and miners have already cancelled some projects. Costs, wages and employment will

Whatever will the Bayou mafia bosses do if the customers demand lower costs? Make lower profits or take back from the workers?

LOL! Maybe why Mista Gary ain’t given a raise!!??!?

[QUOTE=c.captain;130990]considering how rates and costs have been going in the offshore

Whatever will the Bayou mafia bosses do if the customers demand lower costs? Make lower profits or take back from the workers?[/QUOTE]

Just can’t help worrying about the bayou boat world can you?

Well, when it can have effects on almost all the offshore industry & the industry as a whole I don’t blame him.

Does say in the middle that GOM will still be active.

[QUOTE=Saltine;130998]Just can’t help worrying about the bayou boat world can you?[/QUOTE]

rousing the rabble is my specialty…

I am pretty good with a pointy stick too!

[QUOTE=c.captain;131007]rousing the rabble is my specialty…

I am pretty good with a pointy stick too![/QUOTE]

Yeah but that’s not all we keep you around for… You mix a not-half-bad long island iced tea once in a while too

How’s the little green boat doing these days, C.Cap? Cocktails still flowing on the lido deck? Might be around the PNW in a couple of months, I’ll have to look you up for a sunset cruise and a drink.

[QUOTE=PaddyWest2012;131008]Yeah but that’s not all we keep you around for… You mix a not-half-bad long island iced tea once in a while too

How’s the little green boat doing these days, C.Cap? Cocktails still flowing on the lido deck? Might be around the PNW in a couple of months, I’ll have to look you up for a sunset cruise and a drink.[/QUOTE]

HaHa…well played there Paddy! Make that pointy swizzle stick my good man!

thanks for asking about the lovely ORCA too btw, but sadly my leetle green boat is lonely and in need of love and affection. Been so busy with other projects that my attentions are elsewhere at the moment but who wants to work on a wood boat in cold rain? While the rest of the nation is suffering perpetual blizzards, us PNWerners are suffering an endless monsoon deluge. Must have rained 2" today alone. Been box scraping the ground behind my shop to try to reach bedrock beneath all the mud. I MEAN IT IS EFFING WET OUT THERE THESE DAZE!

anyway, if you do come out this way send a PM and we’ll meet up to quaff some good craft NW ales. The Lido Deck and the Gin and Tonics will have to wait for a few more months yet.

“Živjeli shipmate”

[QUOTE=c.captain;130990]considering how rates and costs have been going in the offshore

Whatever will the Bayou mafia bosses do if the customers demand lower costs? Make lower profits or take back from the workers?[/QUOTE]

Love all the bayou mafia references when you are pro union which happens to be a scam started by the real mafia’s lol.

Just another day sailing the seas of captain…

Yea but tha rul mafia don’t know how to cook up a pot a shrimp right good.

mabe the problem is wit da hose pipe…

make not so dire for us Murkins in the GoM but I really have to wonder if Shell is as hot to go as they were in years past for the Arctic? I know they don’t want to give up their leases but likely aren’t so interested in production before well after 2020.

[B]Oil Firms Seen Cutting Exploration Spending[/B]

OSLO, Feb 17 (Reuters) - Global oil firms, hit by one of the worst years for discovery in two decades, are about to cut exploration spending, pulling back from frontier areas and jeopardizing their future reserves, industry insiders say.

Notable exploration failures in high-profile places such as Africa’s west coast, from Angola all the way up to Sierra Leone, have pushed down valuations for exploration-focused firms and are now forcing oil majors to change tack.

“It is becoming increasingly difficult to find new oil and gas, and in particular new oil,” says Tim Dodson, the exploration chief of Statoil, the world’s top conventional explorer last year.

“The discoveries tend to be somewhat smaller, more complex, more remote, so it is very difficult to see a reversal of that trend,” Dodson told Reuters. “The industry at large will probably struggle going forward with reserve replacement.”

Although final numbers are not yet available, Dodson said 2013 may have been the industry’s worst year for oil exploration since 1995.

As a result, exploration will probably be cut, especially in the newest areas, said Lysle Brinker, the director of energy equity research at consultancy firm IHS.

“They’ll be scaling back on some exploration, like the Arctic or the deepest waters with limited infrastructure … So places like the Gulf of Mexico and Brazil will continue to see a lot of activity, but frontier regions will see some scaling back,” he said.

Oil majors, which have a large resource base to maintain, are suffering the most, as the world is running out of very large conventional oil fields, and access to acreage, particularly in the Middle East, is limited.

That is leaving them with an increasing number of gas projects.

“When you look at the mix of oil and gas of the majors, it is definitely moving towards gas - simply because they can’t access conventional oil, which ultimately I believe will have an impact on oil prices,” said Ashley Heppenstall, the CEO of Sweden’s Lundin Petroleum, which co-discovered Johan Sverdrup, the biggest North Sea oil field in decades.
Prices Down Then Up

Before oil prices rise from a lack of exploration, they are first expected to fall, squeezing margins and forcing further investment cutbacks.

The International Energy Agency sees oil prices down at $102 per barrel next year from the current $108 as several producers ramp up output.

“Oil prices need to remain at elevated levels because there is a risk that a fall in oil prices or a cutback in investments by companies will mean that production growth slows,” said Virendra Chauhan, an oil analyst at consultancy Energy Aspects.

Although world oil reserves increased by 1 percent in 2012, they equalled just 52.9 years of global consumption, down from 54.2 in 2011, energy firm BP has said previously. BP sees consumption up by 19 million barrels a day by 2035, which would represent a 21 percent increase on th U.S. Energy Information Administration’s (EIA) estimate for 2011.

Energy firms have already been shifting capital from conventional to shale production, and this trend could continue as the exploration risk is smaller, the lag from investment to cash-flow is shorter, and project sizes are more manageable.

This is weighing negatively on the shares of exploration-focused companies.

“Explorer stocks are trading at discovery value or a discount to it, so from an equity market perspective, there’s no interest in owning exploration stories. People are losing faith in exploration,” said Anish Kapadia, a research analyst at consultancy Tudor, Pickering, Holt & Co. International.

Shares in Europe’s explorers fell 20 percent over the past year, underperforming a 2-percent rise by the European oil index .

Tullow is down 39 percent in a year, while peers Cairn and Cobalt are down 33 percent, and OGX is down 92 percent.

The spending cutback also cut mergers and acquisitions activity by half last year, IHS data showed, and plans to boost shareholder returns could shift focus to cooperation rather than fully fledged takeovers.

"You will probably see more activity at the asset level more than at the corporate level … More joint ventures, swapping assets, buying and selling of assets,’ said Jeremy Bentham, Shell’s vice-president for business environment.

Insiders believe the cuts may not be reversed until capital tied up in projects like Chevron’s $54 billion Gorgon LNG or Conoco’s $25 billion Australia Pacific LNG start producing cash flow and return.

“There will be less investor pressure, then companies can get activity back up, so this may be a pause of a couple of years where companies scale back,” Brinker said.

still ANY scaling back of exploration activity over the globe will mean less demand for rigs and drillships will undoubtedly have a ripple effect in the GoM as dayrates will be pushed downward and when rig rates go down so goes the rates for all the support services.

here’s more on this from Maritime Exectutive

[B]Seadrill Sees Bigger Drilling Market Slowdown[/B]

February 25, 2014 By MarEx

The global oil drilling market will slow by more than expected over the next two years as energy firms save cash for dividends and delay exploration, Seadrill , the world’s biggest offshore driller by market capitalization, said.

Oil companies are struggling with cash outflows, while they also need to spend more just to maintain production levels at their existing assets, where depletion rates are high, Seadrill said on Tuesday.

“Combined with a relatively high dividend payout and increasing development cost to bring new production on stream, oil companies have limited opportunities to fund exploration activities,” Seadrill, the crown jewel is shipping tycoon John Fredriksen’s business empire, said in a quarterly results statement.

“In this regard, 2014 and 2015 may show slower growth in activity levels than earlier anticipated,” it added.

It added that it sees “limited value” in increasing its own dividend further and would preserve funds for buybacks or later dividends.

By 0913 GMT, Seadrill shares were down 6.4 percent, underperforming a 0.3 percent fall in the European oil and gas index.

Seadrill had been on an order spree, adding ultradeep drilling vessels in recent years, but said it would now focus on its existing fleet until it sees oil companies raise spending.

Rates in the ultradeep offshore market, the most lucrative segment, peaked close to $625,000 a day last year and have since fallen to around $575,000 for the so-called 6th generation rigs. Analysts have predicted that those rates will sink further to between $525,000 and $475,000 per day.

“Based on the fact that this pause in spending has not been caused by oil price declines gives us confidence that this is a momentary pause rather than a cyclical downturn,” Seadrill said.

It expects its first-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) to be flat or lower compared with the fourth quarter following a number of operational issues with several vessels.

But it expects year-on-year profit growth above 20 percent in subsequent quarters, it added.

For the fourth quarter, the company reported a 27 percent rise in EBITDA to $768 million, just ahead of forecasts for $754 million in a Reuters poll of analysts.

not the best news for offshore workers but still the GoM is one of the most sought after provinces for deepwater exploration on the planet so still doubt there will be a bust in the offing. Just downward pressure on dayrates for boats and the people who drive them.

and this from Petrobras

[B]Petrobras Cuts Spending As Quarterly Profit Falls 19 Per Cent[/B]

February 25, 2014 By MarEx

Brazil’s state-run oil company Petrobras moved to check years of missed targets, soaring costs and rising debt by scaling back near-term investments and setting a limit on long-term growth.

Petroleo Brasileiro SA, as Petrobras is formally known cut its five-year investment outlook for the 2014-2018 period to $221 billion, 6.8 percent less than its previous 2013-2017 plan, after reporting a 19 percent drop in fourth-quarter profit late on Tuesday.

The company also said production will more than double to 5.2 million barrels of oil and natural gas a day in 2020. After that it will plateau, averaging the same amount for the next decade according to a strategic plan ending in 2030.

Of that 2020-2030 production, Petrobras expects to own 4 million barrels a day of the output, the rest will belong to partners and the Brazilian government.

The strategy supplants a 2020 planning document that has become increasingly untenable as the government imposes new offshore exploration and development responsibilities on Petrobras and the development of shale oil and gas in North America upends the world’s energy outlook.

“The phenomenon of shale gas and tight oil in the United States have been changing the world geopolitics of oil,” Petrobras said in a statement. “It’s in this context that Petrobras has made the big choices that guide its 2030 strategic plan.”

Petrobras also said choices were influenced by change in the world economy after the 2008 U.S. banking crisis and the world recession that followed.

The new goals, also come after a 2010 overhaul of Brazil’s oil legislation forces Petrobras to develop new offshore reserves. This has been made difficult by government fuel-price controls that make Petrobras to spend billions subsiding gasoline and diesel imports to help the government control inflation.

This has drained cash from the company and driven up debt, making Petrobras the world’s most-indebted oil company and exacerbating the cost-overruns and delays that have dogged its previous $237 billion, five-year plan.

Under the company’s new plans, refining capacity will peak at about 3.9 million barrels a day in the 2020-2030 period, nearly double the 2 million barrel a day capacity the company has today.


While Petrobras profit dropped in the quarter to 6.28 billion reais ($2.68 billion) from 7.75 billion reais a year earlier, the result beat the average 5.41 billion estimate of five analysts surveyed by Reuters.

Net sales, or total sales minus sales taxes, rose 10 percent to 81.03 billion reais in the three months ended Dec. 31, from 73.41 billion reais a year earlier, in line with analysts’ estimates.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 30 percent to 15.55 billion reais from 11.94 billion reais in the fourth quarter of 2012.

While operational results were better than expected, tax, currency exchange and other financial expenses limited their impact.

Petrobras reported a full-year profit of 23.57 billion reais in 2013, 11 percent more than in 2012.

Copyright Reuters 2014.

there is no question that we are now entering a period of downward pressure on rates and costs. How will that effect the boots on the ground in the oil patch?

It’s time to get a permanent job and hold on to it for your dear life. Murky water ahead.

[QUOTE=c.captain;131667]and this from Petrobras

there is no question that we are now entering a period of downward pressure on rates and costs. How will that effect the boots on the ground in the oil patch?[/QUOTE]

I like your line of reasoning but I’m not completely sold yet. This could be a contraindication instead of an indication. What if Petrobras took a 19% loss because of the increased power and influence of American petroleum? In that case, they may well be cutting their costs but it would only be good for our boots on the ground and bad for theirs.

I’m sorry but with West Texas oil at over $100 a barrel and natural gas at around $5, the highest I have seen it in a LONG time, if any thing this is just a temporary thing until next quarter when profits are again at an all time high you’ll see the oil companies opening the purse stings quick.

What I keep waiting for is the export terminals to open up and see how that affects things, because with what I have gathered from talking to people, reading, and just the amount of survey operations going on close to Fourchon the shelf is about to see a strong resurgence based off of natural gas.

Hell if you watch the articles on rig zone every time oil closes down for the day it reads like its the end of the world even if it’s 1 cent, and the reverse is true if it closes up any amount. So you have to learn to read everything with a grain of salt. A good rule of thumb is to take what they are saying and take what ever level of doom they are predicting and put it at half to get a more accurate feel for things. Same thing when it’s good news.

As already pointed out it’s the projects in undeveloped regions that are being put on the back burner, which the gulf is not by a long shot. So you’re going to see a focus on making known producing assets more profitable. That means construction of platforms, work over work for rigs, and subsea work for the IMR boats. So boats are still going to be working.

The math just doesn’t add up.
Energy Consumption Up + Energy Prices Up != Lets cut back our spending for a long amount of time.
I don’t care how much they oil companies want to complain about the cost of drilling and developing new assets, but to not do so is most assuredly counter productive to the oil companies main directive. To make more money!

The end of the day is still comes down to the simple economic rule of supply vs demand. The oil companies may bitch about the day rates of our boats, talk about trying to pressure our employers to lower said rates, but if everyone still wants big supply boats and all those big supply boats have jobs then rates will keep going up.

The two main points I got out of these articles is that: (1) Oil companies have been spending like drunken sailors and investors are demanding fiscal discipline and larger dividends; and (2) the oil companies need to slow projects down until the global supply chain can catch up so that the oil companies do not have to overpay in order to obtain the limited services available.

I take it that we are part of the global oil field supply chain that must grow and increase available capacity for the oil companies to use, but at lower day rates. There may be a pause in new boat orders and hiring, but the oil companies are waiting for more boats to be available and more reasonable day rates. Mariner day rates are not going to increase much more, and may even fall somewhat. Who knows, 10% or 20%, but we should have more work than ever.

Exactly my perspective, for what it’s worth. I always thought the big newbuilds were part of a bigger scheme to ultimately increase tonnage and capacity while decreasing or maintaining lev numbers the number of hulls in the trade. Happened when atb’s came around, way fewer barges today but a steady number of high performing larger ones meeting demand.

Transocean, just today on this site says they are spending billions
Those things are going somewhere.