Posted on 04/28/2015 5:04:30 AM PDT by thackney
As a response to lower oil prices, E&P companies have guided considerable cuts in their 2015 investment budgets. Preliminary budgets indicate a ~20% drop in global E&P investments this year, with shale declining the most.
Observing historical trends, Figure 1 shows global investments for offshore and shale oil and gas. During the past decade, offshore investments have increased from ~ US$150 billion in 2005 to ~ US$360 billion in 2014. The growth in offshore investments is a combination of higher activity and higher unit costs (i.e., rig rates). Also over the last 10 years, shale activity accelerated as horizontal hydraulic fracturing became proven and economical. As a result, investments increased from almost zero to ~ US$160 billion in 2014.
Figure 2 shows the change in production resulting from investments. While incurring increasingly more costs throughout the period, offshore production remained largely unchanged at 27 MMboe/d. Shale production, on the other hand, showed robust growth, increasing from less than 100 kboe/d in 2006, to an estimated ~7,500 kboe/d in 2015. The reactiveness of the production to the investments is largely a factor of the life cycle.
Offshore drilling has been prevalent since the 1960s and has a large accrual of declining legacy wells. Each year, operators must drill more wells just to offset the natural decline from historical wells. Shale is relatively immature, with significant activity levels starting in 2008. Therefore, operators are able to build up production with each new well drilled.
Looking into short-term investment budgets, 2015 E&P activity will be ~20% lower than 2014 levels. Shale-focused companies have reduced expenditures by ~30%, and non-shale counterparts have decreased their expenditures by 11%. This implies that shale-focused companies are more flexible to a short-term price collapse and are able to be more reactive in the budgeting.
Companies with exposure to both shale and offshore production (ConocoPhillips, Noble Energy, and Murphy Oil), have decreased their budgets for shale spending by ~50% in 2015, but only adjusted the offshore budget by ~10%. This reflects the flexibility of each segment. Operators can drop shale rigs more quickly than offshore rigs due to contract agreements and have fewer commitments when it comes to infrastructure.
It is clear that operators are able and willing to decrease shale activity faster than offshore activity, but it is still important to review the economics of each source. Figure 3 looks at three economic performance benchmarks: break-even oil prices, payback time, and IRR. Shale and ultra-deepwater fields have the lowest break-even prices at US$61 and US$64, respectively. In terms of payback years, shale is much more attractive with four years before payback, assuming an oil price of US$70/bbl, compared to 11 years for ultra deepwater.
Over the last five years, shale has experienced extraordinary development, delivering much higher production growth than offshore. The flexibility of this source gives operators the option to reduce activity quickly when prices drop. In terms of economics, shale is still a very competitive source of production and will be the fastest to recover once oil prices increase.
Very interesting info. Thx.
Why not both? Both seems the certain reality
What about offshore shale?
There will be both. I think this shows there will be greater investment into the shale production, particularly when prices begin to climb.
There is a big difference in the time scale of investment to cash flow between the two. Offshore takes a lot of time compared to more drilling onshore in an area with infrastructure.
I suspect we will see that in time, but now you have the added cost impact of both to due so.
Offshore drilling probably covers the greater amount of “recoverable” hydrocarbon deposits, but it is also very high-expense and high-maintenance technology, much more per unit cost than land-based recovery methods. But, technology continues to evolve, and within another generation, it may be more cost-effective to convert things like various waste streams to high-quality petroleum, than to try to take it out of the ground. Things like Thermal Depolymerization, and such existing technology as making more complex hydrocarbons out of natural gas (Fischer-Tropf process), both require large amounts of heat energy. Good source: Thorium-fueled Molten-Salt atomic reactors, a most flexible and potentially highly valuable source of MANY other industrial processes.
My guess is that fracking on shore would outlast offshore drilling if only because the infrastructure is less expensive.
I don’t know about outlast. More likely investment in the near future. I think long term volume of resources may favor offshore once prices are high enough and technology far enough advanced.
I’m nowhere close to being a petroleum engineer, so I have no clue, but it would seem to me that offshore fracking would be simpler because of all the seawater available as fracking fluid.
Sea water could not be used without purifying. Pumping millions of gallons full of organics into the reservoir would plug up the pores for all time.
Also, just like onshore, the disposal becomes a big problem. They won’t be permitted to just dump the contaminated water in the ocean. Disposal offshore would be even more expensive.
Consider the possibility that the successor to “Watson” might be sicc’d on the problem . . .
Related to this recent question of your:
In flood of subsea tools, shale-busting tech draws eyes at OTC
http://www.freerepublic.com/focus/f-news/3286807/posts
High-horsepower pumps and big hydraulic fracturing trucks, the primary tools used to bust open U.S. shale rock, have carved out parking spaces of their own at the Offshore Technology Conference.
They’re an attraction for foreign onlookers interested in the technology that brought a rush of American oil to market. But more and more, they’re a jumping off point for oil producers looking to break open hard sandstone reservoirs found in deeper offshore fields, like at Chevron’s Jack/St. Malo project in the Gulf of Mexico.
Offshore producers have fractured conventional wells for decades, but advances in the landlocked U.S. shale industry have begun to bleed into the offshore side of the business.
more at link
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