Global Oil and Gas Discoveries Fell to a Record Low in 2023

The tug of war between drillship owners and drillship renters over +$500/day dayrates appears to be coming to a head that shifts the balance of power to drillship's owners.

What's driving the power shift? Deepwater's relatively low breakeven costs. Lower breakeven costs increase drillship demand at the same time owners are not building any more drillships. Higher demand with global utilization rates over 90% and growing, translates to higher dayrates. Furthermore, owners appear to be balking at paying for reactivations of stacked rigs to increase supply.  

In the macro, adequate oil supplies with midrange oil prices are mostly keeping supply and demand balanced and oil prices stable. That has kept oil prices firmly mid ranged. Oil under $90 disincentivizes overproduction... as in the old adage, 'the cure for high prices for oil is high prices'.

Covid's record low oil prices disincentivized upstream E&P. Last year, the super majors were distracted by M&A activity, confusing schizophrenic ESG policies from governments vs big woke investors demonizing big oil, and lower profits from lower priced oil. So far, big oil did not have to be in a rush to find new offshore oil. Delaying offshore projects worked to their advantage. Delays in drillship FIDs put pressure on drillship owners to sign contracts with dayrates lower than would like in order to stay in business and avoid bk. 

On the other hand, the lead article above points out 41% of new discoveries came from deepwater areas. Macro market dynamics pointing to growing global oil demand and the world's 3 biggest economies growing means that deepwater percentage number will continue to grow as shale reserves in the USA deplete. Older shale wells requiring re-fracking for less and less return on investment. The high costs of re-fracking drives up breakeven costs. Right now, new Permian wells have breakeven costs with $30 handles. Older wells have $50 and higher breakeven costs. This makes offshore oil's low breakeven costs very attractive in comparison to onshore oil. That drives profits.

Big oil is going to drill where the biggest profits are. In places like Guyana, Hess has said their deepwater breakeven costs are in the $25 to $35 ranges. Hess' profits surged due to Guyana production.*  FPSO orders confirm this.

*Read more here - Hess profits surge thanks to higher production in Guyana and Bakken - Net income grew by $626 million, beating expectations
www.upstreamonline.com/finance/hess-profits-surge-thanks-to-higher-production-in-guyana-and-bakken/2-1-1633340

Increasing world oil & gas demand, depleting world oil reserves, higher cost less productive shale/fracking wells, a finite and shrinking supply of capable high spec drillship availability, and, the need for reliable energy security will all gradually drive up oil prices. Higher prices make dayrates easier to justify. The long lead times required to go from discovering oil via deepwater exploration to production wells, means big oil will eventually and gradually have to capitulate and pay the higher dayrates to meet demand. Higher profits ease the pain of higher drillship dayrates as evidenced by Hess surge in profits in Guyana... while paying higher drillship dayrates.

The long lead times and the long term nature of deepwater oil means the super majors have delayed about as much as they can without affecting profits shareholders demand. Big oil knows the future depends on big deepwater projects' high margins and profits. Everyone knows the balance of power is shifting to drillship owners and the delays must come to an end.

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The bolded and underlined text above was corrected by bjspokanimal as it relates to re-fracking costs actually being 40% less than new wells.

Chevron posts Q1 profit beat with oil production gains

brazilenergyinsight.com/2024/04/26/chevron-posts-q1-profit-beat-with-oil-production-gains/

(Reuters) -Oil giant Chevron Corp beat estimates for first-quarter profit on Friday as higher production volumes in the U.S. helped offset a hit from weak natural gas prices and fuel margins.

The second largest U.S. oil producer posted a profit of $5.5 billion in the quarter ended on March 31, down from $6.57 billion, or $3.46 per share from a year ago. Results beat consensus by 2% as recent acquisitions bolstered oil and gas volumes.

Chevron and Exxon Mobil, which posted first quarter results that missed Wall Street consensus estimates, are feeling the pinch of weak energy prices and fuels margins that have cooled in the last year. A glut of natural gas and a warmer-than-expected winter slashed natural gas prices, eating into earnings.

“U.S. production was up 35% from a year ago, and we continued to meet major project milestones,” CEO Mike Wirth said in a statement.

Chevron said results were sustained by higher production brought by the acquisition of PDC Energy, Inc and sustained strong execution in the Permian and Denver-Julesburg (DJ) Basins.

Shares fell 1.4% in pre-market trading to $163.35.

Chevron said first quarter oil and gas production jumped 12%, to 3.34 million barrels of oil equivalent per day (boepd).

Earnings from pumping oil and gas were $5.24 billion, up from $5.16 billion in the same period a year ago. But profits from producing gasoline and chemicals fell sharply, to $783 million from $1.8 billion a year ago. Refining suffered from weaker margins and higher operating expenses, the company said.

Chevron reported adjusted per share profit of $2.93 for the first quarter, beating analysts’ consensus estimate of $2.87.

GUYANA

Late last year, Chevron offered to buy Hess Corp for $53 billion to get a foothold in oil-rich Guyana’s lucrative offshore fields. The deal, however, has been stalled by a regulatory review and challenged by Exxon Mobil , which claims the right to Hess’s Guyana assets. Exxon and partners aim to double production capacity to 1.3 million barrels of oil equivalent per day (boepd) by the end of 2027.

Chevron said “the merger with Hess is advancing” and it intends to certify substantial compliance with the Federal Trade Commission’s second request in the coming weeks.

“We remain confident that a preemption right does not apply to this transaction and believe this will be affirmed in arbitration,” it said.

Management will provide more details on a conference call at 11 a.m. ET with investors looking for year-ahead guidance and an update on the arbitration case

Chevron shares has underperformed rival Exxon by about 10 percentage points so far this year, amid challenges to its proposed acquisition of Hess.

Thanks, spok. You are correct. I misunderstood the process.

I looked it up and re-fracked wells cost 40% less the new wells. What I got confused was that as fracked wells in an area deplete it makes other new wells in the same area less productive. To maintain production new wells have to be drilled and those wells are less productive.

Here's an example I found...

U.S. Shale Drillers Begin Re-Fracking Existing Wells

By Irina Slav - Jun 27, 2022
oilprice.com/Energy/Crude-Oil/US-Shale-Drillers-Begin-Re-Fracking-Existing-Wells.html

Oil well re-fracking is on the rise in the United States. Re-fracking of existing shale wells can cost up to 40 percent less than drilling a new well.
Re-fracking of existing shale wells can cost up to 40 percent less than drilling a new well.

Re-fracking could also help U.S. shale drillers boost their cash flow further.

Oil well re-fracking is on the rise in the United States as shale producers seek to boost production without making significant investments in new wells, Reuters has reported.

Re-fracking appears to be a way to reconcile shareholder insistence on higher returns and calls from the federal government to increase oil production at a time of tight supply, which has led to higher prices for both crude oil and refined products, chiefly fuels.

According to the report, re-fracking of existing shale wells can cost up to 40 percent less than drilling a new well. It can also double or triple the output of an existing well, one fracking industry executive told Reuters.

Economy has become important for shale drillers despite much higher benchmark oil prices because of widespread shortages of equipment, workforce, and raw materials that have increased production costs. These are up about 20 percent from a year ago, according to Callon Petroleum, a Texas-based company, as cited by Reuters.

Re-fracking could also help U.S. shale drillers boost their cash flow further, which would make their shareholders even happier than higher dividends.

According to a recent report by Saudi bank Al Rahji Capital, cash per well for U.S. shale producers rose to $34 per barrel in the first quarter of this year, from $23 per barrel in the last quarter of 2021.

This is still much lower than the $51 per barrel that shale drillers got in the first quarter of 2020, the report noted, but added that it is still “providing enough cushion to boost the production levels amid higher oil prices.”

U.S. crude oil prices have gained some 40 percent over the past 12 months, but domestic oil production remains about a million barrels daily below the record 12.8 million bpd the U.S. produced in early 2020.

By Irina Slav for Oilprice.com

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jpt.spe.org/shale-wells-producing-more-early-on-then-declining-faster-than-ever#:~:text=Rapid%20declines%20will%20push%20up,to%20becoming%20gas%2Donly%20producers.

Here's an excerpt: The fact that new wells produce less than older ones is not a surprise. Historically, infill wells are less productive than the initial ones.

But if the decline curves on these already short-lived wells gets steeper, that will magnify the challenge of drilling and fracturing enough wells to deliver on predictions of continued growth.

More-intensive fracturing and tighter spacing can maximize the initial rate of production which represents much of the ultimate production of these short-lived wells.

After years of intensive development, the vast majority of the wells drilled now are near older ones that have depleted the surrounding reservoir, reducing the production from new wells.

Generally, the Permian’s profile is looking more like other oil-rich shale plays where development began sooner and there was far less to develop than in the Permian Basin.

Rapid declines will push up the breakeven oil price needed for new oil wells by reducing the potential production and revenue of these wells which are well on their way to becoming gas-only producers.

The fact that new wells produce less than older ones is not a surprise. Historically, infill wells are less productive than the initial ones. But if the decline curves on these already short-lived wells gets steeper, that will magnify the challenge of drilling and fracturing enough wells to deliver on predictions of continued growth.

More-intensive fracturing and tighter spacing can maximize the initial rate of production which represents much of the ultimate production of these short-lived wells.

After years of intensive development, the vast majority of the wells drilled now are near older ones that have depleted the surrounding reservoir, reducing the production from new wells.

Generally, the Permian’s profile is looking more like other oil-rich shale plays where development began sooner and there was far less to develop than in the Permian Basin.

Rapid declines will push up the breakeven oil price needed for new oil wells by reducing the potential production and revenue of these wells which are well on their way to becoming gas-only producers.

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www.desmog.com/2019/01/10/fracking-shale-oil-wells-drying-faster-predicted-wall-street-journal/

In 2015, Pioneer Natural Resources filed a report with the federal Securities and Exchange Commission, in which the shale drilling and fracking company said that it was “drilling the most productive wells in the Eagle Ford Shale” in Texas.

That made the company a major player in what local trade papers were calling “arguably the largest single economic event in Texas history,” as drillers pumped more than a billion barrels of fossil fuels from the Eagle Ford.

Its Eagle Ford wells, Pioneer’s filing said, were massive finds, with each well able to deliver an average of roughly 1.3 million barrels of oil and other fossil fuels over their lifetimes.

Three years later, The Wall Street Journal checked the numbers, investigating how those massive wells are turning out for Pioneer.

Turns out, not so well. And Pioneer is not alone.

Those 1.3 million-barrel wells, the Journal reported, “now appear to be on a pace to produce about 482,000 barrels” apiece — a little over a third of what Pioneer told investors they could deliver.

In Texas’ famed Permian Basin, now the nation’s most productive shale oil field, where Pioneer predicted 960,000 barrels from each of its shale wells in 2015, the Journal concluded that those “wells are now on track to produce about 720,000 barrels” each.

XOM has new horizontal drilling tech that can go out 2 miles in each direction from the main well. So, one well can now have a diameter of 4 miles across with horizontal wells going out in all directions.  directions. 

Excerpt:

Exxon Bringing Longer Laterals, New Tech to Pioneer ...

Hart Energy
www.hartenergy.com › exclusives › exxon-bring...

Oct 11, 2023 — “Most people are drilling one- to two-mile laterals,” Chapman said. “We can have just one drilling rig to drill the whole of the four miles—and

Good to see that Pouyanne is bold enough to speak rationally about what is achievable and what is not. Nobody is denying that working toward carbon reduction is a desirable goal. The problem people have with it is politicians that force green solutions on a society when it's financially harmful to them and harmful to the economy and national debt. Making the transition at a more natural rate that is less invasive to society's lifestyle and finances is far more practical but the left is made up of too many Greta Sundberg like people to think that way.