Upstream execs present differing angles, priorities at ONS afternoon session

By KURT ABRAHAM, EDITOR on 8/29/2016

Reflecting very different angles and priorities for coping with the 22-month oil-and-gas downturn, top executives from Saudi Arabia, the U.S., Brazil, Mexico and France, along with one analyst, told ONS attendees on Monday afternoon how they will move forward, as the industry begins to recover.

First among the speakers was Saudi Aramco Senior V.P. for Upstream, Mohammed Al-Qahtani, who immediately appeared to disappoint the crowd by not talking about what his country will do with respect to oil production levels and oil price targets. When pressed on the topic during the question-and-answer session after his presentation, Qahtani still skirted around the question, remarking, “you really didn’t expect me to talk about policy now, did you?” When it appeared that the crowd and the session moderator were still not mollified, Qahtani relented only enough to say, “We are fulfilling our customers’ demands, including our own domestic requirements, and we will continue to do so.”

Instead of policy, Qahtani focused his remarks on other operational issues, such as the ongoing program to expand refining capacity another 800,000 bopd, which is about completed. He also reminded the audience that Saudi Aramco has been exploring shale in the Kingdom for the last five years, especially for shale gas, and this program will continue.

One of the matters that Qahtani spent a good deal of time speaking to is the fact that the oil and gas industry, as a whole, has a low participation rate from women in its workforce. “We need to face it and think beyond the traditional,” said Qahtani. “The challenges facing the industry require us to employ our brightest people. We have to target into the STEM disciplines and attract women to them.”

Back on the supply-and-demand front, the chief oil analyst at Energy Aspects, Amrita Sen, reiterated to the crowd that “it’s definitely a challenging market for oil right now. Demand growth isn’t going away anytime soon, but it’s not particularly robust.” Sen said that one of the things propping up demand growth at the moment, despite anemic economic performance in Europe and the U.S., is the filling of strategic oil reserves by various Asian countries, a move that she expects to continue for a while.

But the single-biggest factor holding down oil prices, said Sen, is that “we still have a huge inventory overhand globally, perhaps 400 MMbbl to 500 MMbbl. So, you have to be patient.” She noted that U.S. tight oil output is starting to fall rapidly, although the country’s shale output can come back faster than production in the rest of the world. For instance, Asian output is falling at about 300,000 bopd, per quarter. Meanwhile, decline rates in the Gulf of Mexico have accelerated from 8% to 9% per quarter, to 16% to 17% in second-quarter 2016. Not surprisingly, global capex has shrunk about $250 billion since peaking at almost $700 billion in 2014, and almost 6 MMbpd of new projects have been postponed or cancelled across both non-OPEC and OPEC countries.

Looking at things from an onshore U.S. perspective, Pioneer Natural Resources Chairman and CEO Scott Sheffield predicted that the Permian basin will drive long-term U.S. oil production growth and noted that his firm is well-positioned in that region. “There are estimates that oil reserves in the Permian may total 75 Bbbl in the Midland basin and 40 Bbbl in the Delaware basin at today’s prices,” said Sheffield. “The key to shale plays is maturity and pore pressure. We have 4,000 ft of shales in the two basins, much more than the average feet of shales in the Bakken or Marcellus.”

Sheffield said that his firm’s break-even price in the Permian is only $25/bbl. By contrast, he noted that it may take a price of $60/bbl, or above, to get activity going in other U.S. shale plays. “I expect that the Permian will add 50 to 75 more rigs over the next several weeks,” predicted a confident Sheffield.

South of the U.S., Mexico continues to look for ways to keep all of its production economic, said Gustavo Hernández-Garcia, the CEO of Pemex Exploración y Producción. “Industry is now adjusting to ‘Lower for a Lot Longer,’ and that pertains to us, too,” said Hernández. “We have reduced the average drilling time at fields, such as Homol, Ixtal, Kuil, Onel and Chuhuk, by up to 41% between 2013 and 2015. Our goal is to further improve drilling times by 6% in 2016.” He noted that in helping the firm’s bottom line by improving costs and efficiencies, Pemex is deploying capital in more profitable businesses.

On the subject of the offshore opening to foreign operatorship, Hernández noted that the Round 4 bidding cycle is still on schedule. Deepwater tracts will be awarded by that round in December, and 26 companies are participating, he explained.

Closing out the session was Total Senior V.P. Michale Borrell, who explained that he would talk about gas instead of oil, choosing to focus on the large Yamal LNG project being constructed in northern Russia. “Gas is in the growth end of the market, and this is an area that already produces 80% of Russia’s gas, and 20% of the world’s gas.” Calling the Yamal project “a human adventure,” Borrell said it would eventually produce 60.5 MMt annually from three trains.

The site, he pointed out, has many logistical challenges, such as harsh climate, remote access, and geopolitical situations and sanctions “Yet, the project is on track and 63% complete,” he said with some pride. Borrell said that winterized drilling rigs will allow Novatek and Total to operated 24/7, all year-round. So far, 60 wells have been drilled, and about 18,000 workers are on site. The latter figure is expected to peak in the next year at about 22,000 workers.

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