A letter from oil exploration insider
I work for a major international oil company, in the exploration area. Peak oil is a fact – we are all on the back side of the bell curve.
While this is true, it might be better to term it the “Cheap-Oil Peak”. The US/UK/Western Europe are the entities primarily responsible for using up most of the oil prior to the mid-1980’s. Around that point, Asia and China got into the mix. As their economies heated up – more oil was used. This trend is still in effect.
I followed the link to that “Beware of the Peakoil Agenda”, which I probably shouldn’t have done. The ignorance of most of the world about what we do in oil exploration is amazing. Even the DOE has no idea how or what we really do – they are academics, and exist in their own government-funded bubble.
Provided the world can resist pulling the trigger on our debt, and we can resist pissing them all off in unison, we just might be ok for another 10 years, basically rolling along “as-is” but with higher oil/gas prices. We do have some untapped resources here, but there are some facts that most people do not understand with respect to the exploration industry.
1) We are drilling rig limited – we are at full capacity world wide in the offshore rig market, and even the small number of new drilling rigs they are building will not improve that appreciably. No drilling contractor is going to build rigs rapidly ever again – not after the disaster of cheap oil in the late ‘70’s and ‘80’s. Assuming oil jumped to $100/bbl tomorrow, little in our industry would change, because the drilling infrastructure has been cannibalized for 20 years…..we are already drilling as fast as we can!
2) We are personnel limited – in 1982 there were 1.6 million Americans working in the Oil & Gas sector, and today there are roughly 500,000. Imagine the hue and cry from any other industry at a job loss of well over 70% nationally!! The average age of people like me is 45 years old or older, with a great many facing retirement in the next 10 years. The age bracket between 30 and 45 is basically empty – who enters a consolidating, shrinking field intentionally? We simply do not have the available manpower to ramp-up in response to any stimulus - we are currently each doing the work of 2 or more people as we exist today!!
3) The notion that we are sitting on “capped wells” of oil or gas is utterly ludicrous. We simply do not drill and sit on reserves – they must be produced to pay for the enormous expenditures we have in drilling them, or shareholders would evaporate as our bottom lines became nonexistent. Wells are drilled based on the estimated oil price 6-12 months ahead, and that estimate is very bearish due to what happened in the 1980’s oil bust. Oil and gas actually move through rock – “sitting on capped wells” must have been invented by some environmental nut-basket, because there is no business or geological sense to it, and smart people follow the money.
4) We are finished with most of the “second tier” exploration domestically. What we have left in the ground is either uneconomical due to depth, temperature, technology or “other”. “Other” includes those wonderful people who NEVER want to see a drilling rig anywhere near them (NIMBY) or in their view. Thus we have been essentially “frozen out” of the west coast, the east coast, all of Florida and the Arctic frontier. If we were “turned loose” on all this acreage, it would require well over 36 months for the first drop to get to market. We must find it, delineate it, build a producing structure, and then ship it in states or areas that have no oil transportation or drilling support infrastructure!
5) Many people foolishly believe that higher prices will make the oil as valuable as gold is today. What they fail to realize is this: as liquid energy (oil) prices rise, all associated prices rise! Even if oil sells for $100/bbl, everything built with this $100/bbl oil will experience the same price increases, and likely more. This includes all plastics, steel, transportation and chemicals! We are currently bypassing the drilling of certain wells right now because the cost to get them out of the ground cannot be recovered. If our material costs (what we buy or rent to actually build an oil or gas well) rise with oil prices, many fields will never be produced, as it will always be uneconomical due to the small size of the oil trap.
6) For the most part, the biggest fields have been discovered world wide. What remains is technologically prohibitive (water depth, downhole temperature or sheer depth of the deposit). We are all fighting for the scraps as things exist today, with the exception of the African coast. There, we are fighting for our lives as well as oil. I have personally been shot at during overseas stints, and once held hostage by guerillas as they blew up our rig while we watched. We are not a bunch of sissy-boys in this industry, but we also have wives and children. West African production will never increase appreciably until their governments achieve stability. In other words, West Africa cannot help us in the foreseeable future.
Some numbers for the number bunch to crunch: The average offshore rig cost $24,000 per day to rent in 2003, and today the same 30 year-old-rig costs $40,000 per day to rent due to rig availability. Yes, most of our rigs are 30 or more years old – would you rent a cabin on a 30 year-old cruise ship? Yet this is what we drill oil wells with in the new millennium…..
Multiply that times the average 45 days to drill a “second tier” oil or gas well, you get $1,800,000 just for renting the drilling rig! No other mining industry or industry I know of has such tremendous up-front costs. The average price for a typical offshore well is around 3.7-4 million dollars. A production platform to bring the oil to is easily in excess of $10 million…….and these prices will escalate with energy costs!
It is not a question of “if” peak oil has occurred – it has! The better question might be “when are the crows coming home to roost?” When will we begin to actually experience the shortages and the rising prices? I think we might make a decade, if everybody plays nice across the world. But when has that ever happened when something got scarce?
Just wanted to get that off my chest. I have been maligned and spit on by too many people who drive cars and use electricity, and then bitch about prices or claim some kind of “Big Oil Conspiracy”…. I can tell you that the collective consensus within my business will be “let the bastards freeze in the dark” when the big wail arises.
Respectfully, (name withheld)
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