An Oil Enigma: Production Falls Even as Reserves Rise

[Dover]

An Oil Enigma: Production Falls Even as Reserves Rise

By ALEX BERENSON

June 12, 2004


For six consecutive years, ChevronTexaco has had good news for anyone worried that the world is running out of oil: the company has found more oil and natural gas than it has produced. Over that time, ChevronTexaco's proven oil and gas reserves have risen 14 percent, more than one billion barrels.

But near the bottom of ChevronTexaco's financial filings is a much less promising statistic. For each of those years, ChevronTexaco's wells have produced less oil and gas than the year before. Even as reserves have risen, the company's annual output has fallen by almost 15 percent, and the declines have continued recently despite a company promise to increase production in 2002.

ChevronTexaco is not the only big oil company whose production is falling despite rising reserves, though it has the largest gap. As consumers, economists and governments around the world wonder if oil supplies can keep pace with rising demand, production trends at the industry's publicly traded companies are not promising.

Collectively, they paint a picture of an industry that has depleted nearly all of the world's easily exploited reserves outside the Middle East and that is now struggling to sustain production, much less increase it. Fears about supply shortfalls and rising demand have already caused prices to climb about 20 percent this year, hovering around $40 a barrel. The four biggest companies own only about 4 percent of the world's reserves, which are mostly government-held, but they offer a unique glimpse of supply trends because they must disclose their reserves and production each year...cont'd

http://www.nytimes.com/2004/06/12/business/12RESE.html?hp

[punpirate]

1. While it's just an anecdotal observation...

... I've been going through the Permian Basin range a lot lately, and my guess is, at least in this particular oil patch, the oil companies have been waiting for the top prices to stabilize before they start more production. Through the winter, there were virtually no new drilling rigs in place, and a lot of the pumps for existing wells were shut down. In the last month or six weeks, I've seen about five new drill rigs and a lot more crickets working.

From that, at least in this area of the country, I can only gather that the oil companies have been sitting on the oil until the price went up and stayed there for a while.

[lapfog_1]

2. I thought

the general reason to idle pumps on mature oil fields is that
they have discovered that it's much more efficient to use only
a fraction of the wells which originally drilled, attempting to
keep a few wells operating at maximum efficiency (least amount
of energy used to pump compared to oil raised to surface).
Plus, they have also discovered that many fields are very much
interrelated, so drilling more wells isn't all that useful at
extracting every bit of oil.

Please correct me if I'm wrong about this.

My guess is that the oil companies, and oil producing nations,
have been overstating reserves for some time now, and peak oil
has already happened. Even adding in oil shales and tar sands
(and the immense amount of natural gas needed to convert these
to oil), we may only buy 10 more years of "cheap" oil... by cheap
I mean under $100/barrel.

[punpirate]

4. Well, look at the evidence....

Four months ago, about 60% of the pumps I see were inoperative, and there was no drilling going on. Now, when oil has held at $38-40/barrel, 80% of the pumps are operative and there are several new wells in the space of twenty miles of highway.

What does that say about efficiency of pool extraction.

As for pump efficiency, as you describe, I think that's BS. Crickets work on the same principle as water windmill pumps. Turn one revolution, and there's a set stroke depth, raise it one revolution and there's a fixed amount of oil removed from the pool.

As well, adding more holes in the same pool increases the rate that oil can be withdrawn.

Nah, this is little more than market manipulation. It's part of the boom/bust syndrome of the oil patch.

At each oil shock in the last thirty years, that shock has created a shelf below which prices do not go by significant amounts. This is the latest shelf. After summer, gasoline prices will drop back to the $1.75/gal. level, but national averages won't go much below $1.65. Periodically, from now on, they'll bust upwards out of the $2/gal. range.

The people running our oil companies aren't altruists. They are as good at this game as the Arabs. Price goes up, they pump extra out of the reserves, price goes down, they stop pumping from existing reserves, and negotiate for overseas oil.

Other countries don't have tax advantages such as we do, like the oil depletion allowance.

Cheers.

[TreasonousBastard]

8. Many of those pumps...

are on old fields and only bring up a few barrels a day, so don't pay for themselves when oil is under "X" per bbl. They're idle until the prices rises to where they make money. This has happened throughout fluctuating oil prices for years.

A lot of those pumps are owned or run by small independants, too, who might not have the money for tertiary recovery. If these prices stay up, I imagine we'll be seeing a lot more tertiary recovery, and new technologies to go beyond even that.

[JohnyCanuck]

3. Shell might have started a trend.

Simmons and others say that the recent Royal Dutch/Shell scandal is just the tip of the iceberg. Shell stunned the financial world four months ago by revealing that it had overstated its proven reserves by a full 20 percent. Since then, Shell has cut its reserves four times, wiping 4.9 billion barrels off of their balance sheet.

"Most of us can't believe Shell is the only one," says Deffeyes. "Traditionally, they've been very good and conservative in their accounting practices. A bunch of us suspect they are probably just the first to come clean."

Colin Campbell agrees, and sees the Shell case as a watershed event. "This really is the moment of truth, because all these games and foolery have finally reached their end," he says. "You can't paper over it anymore. I'm quite sure that all the major companies will come out with similar announcements."

Campbell points to mergers of companies like Exxon-Mobil and BP-Amoco as more evidence of impending decline. The mergers create growth on the companies' balance sheets despite the fact that actual oil discoveries are in rapid decline, production is tapering off and reserves are probably overstated.


NY Press: The Coming Energy Crunch (The quotes from Simmons and Campbell are on Page 3 & 4.)

[punpirate]

6. American companies depend heavily upon...

... the oil depletion allowance for profits at the levels to which they're accustomed, I believe. I'm not sure how that figures into the recent recalculations of their reserves, but I think it does. I think they can't take that allowance at the same rate, based on their reserves.

But, still, anyone who thinks the oil majors of this country are just performing a public service at nominal profit hasn't been watching their balance sheets over the last year.

Any external influence (or a war we create to disrupt supply and instill uncertainty in the market) sends the per barrel price upwards, and they benefit.

All I've said is that when prices were lower, they weren't pumping, and when prices have held at $38-40/bbl, they're pumping more. All these guys are internationals. They get oil wherever it's cheapest. So what if buying overseas screws the balance of payments? Keeping their own here, pumping it only at the highest market prices, insures a small domestic supply available at premium prices when the real crunch comes, when we've pissed off all the rest of the world in the next thirty years.

When the rest of the world goes to Euros as a reserve currency for the purposes of buying oil, what happens here? The dollar cowers and runs for the dog house. Imported oil would be prohibitively expensive and domestic supply is the only way to prevent massive shutdown of the economy. At that point, the oil companies can charge prices marginally below the international price, and clean up.

But, hey, what do I know? I'm just watching how many pumpjacks are in operation in my neck of the woods. :P

[oneighty]

11. Keeping their own here,

oil that is. I have always maintained we must use up all the other's oil before we start on our own. It is the American way of greed.

180

[FlemingsGhost]

5. Anyone want to guess what direction profits are headed?

At least ChevronTexaco has had good news for anyone worried that the company is running out of money.

[teryang]

7. EXXON

ExxonMobil's CEO stated last month on PBS that EXXON controlled ten percent of the world oil market. So production and reserve figures don't tell the whole story.

[Massacure]

9. They probably won't maintain 10 percent for very long

Unless they have some wells in the Middle East which I would doubt.

[teryang]

10. I don't pretend to know

I'm just pointing out that this article is low balling the extent of seven sister control of the world market.

[jmcgowanjm]

12. June 5, 2004-still standing by prediction-PeakOil/Thanksgiving'05

It almost happened last Wednesday. Several news
reports during the day said that OPEC had removed
all restrictions on production; OPEC member countries would
be free to sell all the oil they could produce. In essence, it
would have announced the death of OPEC. However,
on Thursday morning The Wall Street Journal said that
OPEC settled on an alternative: announcing a
production limitation high enough to encompass the
entire OPEC capacity. That way, OPEC publicly retains the
image of a viable cartel.

http://www.princeton.edu/hubbert/current-events.html

[jmcgowanjm]

13. Ten US Navy Carriers Now At Sea - Only Two In Port

Completely unprecedented.

http://rense.com/general53/port.htm

According to various press reports Bush has either retained
or consulted with powerhouse attorney Jim Sharp,
who represented Iran-contra figure retired Air Force
Major General Richard Secord; Enron's Ken Lay; and
Watergate co-conspirator Jeb Stuart Magruder. All three
were facing criminal rather than civil charges. Either way, a
clear signal has been sent that Bush expects to be either
called to testify (which was a precursor in Watergate to a
criminal indictment of Richard Nixon) or be named as a defendant. Either way, the President's men are falling faster
than their counterparts fell in Watergate, and the initial
targets are much higher up the food chain.

http://fromthewilderness.com/free/ww3/060804_coup_detat.html