Tuesday 21 July
Executive Plenary Session
Manuj Nikhanj, Managing Director, Head of Energy Research, ITG
Shale play success: Less than 5000 ft, 50% max clay content, ++. First 10 wells are most important. Fantastic animation of unconventional plays and history of capex vs IRR. Lower-48 US (L48) break evens. 2013-14 break evens $70/BO WTI. Today's break evens $55-60/BO WTI driven by 20% service cost reduction. Gas decline rate L48 has been 26% for several years. Oil decline rate L48 is 34% and increasing. Less than 10% IRR is abandoned. L48 could hit 12MMBO/D in 20 yrs with strong oil prices or drop to 7.5 in weak pricing (current 8.5). This talk was a brain dump, great stuff.
Peter Richter, Vice President of Strategic Development, Schlumberger
Problem: Larger increase in capex than oil production 1997-2008. Cash positive means at least 10% IRR. Efficiencies to come: Multi-laterals (common in Middle East), refracturing (mixed success in eagleford) and channel frac (uses less fluid and proppant, began 2010). Diversion technology to aim frac is coming. Sliding sleeve completion allows water zones to be turned off.
Barry Biggs, Vice President Onshore, Hess Corporation
Lean culture model and structured problem solving. Army of problem solvers. Bakken (95-105 MBO/D, 8 rigs) and Utica (20 MBO/D, 1 rig). Balance: 50% onshore-offshore and conventional-unconventional. Response to low prices? Focus on technology. Drill core. Lean culture. Asset collaboration room. Weekly poster meeting. Managers are there to remove barriers not run the meeting. Cost savings 10-30% from contractors. "You will never save your way to prosperity." No sliding sleeve completions in Utica.
Monday 20 July
Approaching 3500-4000 attendees. Technical committee also about 3000 strong.
Adam Sieminski (EIA Administrator)
US now largest oil producer. CBR means crude oil by rail. Oil export not legal in U.S., except Alaska pipeline and few other small exceptions. LNG export is ok. Production growth about -2% in major U.S. unconventional oil plays. Future (1 yr) oil range forecast $30-100/BO. Inventory growth is peaking now. Spare world crude capacity 2MMBO/D. If you don't know what is going on on China, you'll never be able to figure out the world oil supply-demand picture. U.S. Oil production can go to 16MMBO/D with high prices. "I'm one policy remark away from returning to the private sector."
"Talk on Latin American unconventionals? It would be over in 5 minutes." 150 years ago coal was vital in UK and thought irreplaceable. Today UK coal is cheapest in the world, is 5% of UK energy mix. Energy source substitution is the key point. Fossil fuels are here to stay, many decades to come. We cannot replace the fossil fuels any time soon. Need to find a balance with environment. Peak oil? Only one accurate prediction, Hubbert's 1971 peak, all others have failed. We have a lot to learn about productivity in limestone. After 100 years we still cannot break the code. Key fact is private land-mineral ownership, unique to U.S. In order to know the final reserves in an area we would need to know the level of future knowledge; by definition this is unknowable. No one in poverty cares about global warming. Kyoto protocols? Only two countries were able to comply, Japan and Canada (?).
Tony Vaughn (VP Devon)
Expecting 1-2% demand growth for O&G. Onshore unconventional plays have flexibility on rate (spend) of development, which deep water plays do not. Best 2013-14 U.S. unconventional wells have 90 day avg of 600BO/D and $10-11MM caper per well. There are sweet spots and fringe areas in unconventional plays. "Favorable above ground risk." Increasing investment in data at Devon.
LJ: Saudi produced 9.8-10.2MMBO/D for many years. Now change to preserve market share. Used to be one voice, now many voices. Low oil prices won't last too long. KSA royal family has 17,000 princes.
TV: Industry has retreated to core of assets. Capital reduction about 30% across O&G industry. More technical collaboration, teams, try to understand the data.
AS: Geopolitics difficult to work into oil price forecast. A problem in Saudi Arabia would be a disaster for oil markets. Reverse Black-Scholes is out best risk estimator (backed out from global crude options activity and pricing).
LJ: In Venezuela government controls military and money, it will be a few years before we see a change. China and Lukoil are investing there; production is increasing.
AS: We need more women and minorities in this room. Talent gap, what talent gap?
LJ: Mexico and all South American countries are interested in unconventional plays, although Brasil geology is not favorable. Holdback is political. Chevron is looking ahead to opportunities in Argentina with new political leadership. U.S. Shale oil is changing global supply lines.
TV: Onshore rig day rates have dropped 20-30%. Labor market change is slow. If we stay under WTI $60/BO people will retreat to core holdings and stress will go up on weak players.
AS: Costs are driven by prices, not the other way around.
Had lunch with Tracy Stark and my old Aramco buddy Steve Adcock who now works for OpendTect (great product!).