is exploration dead at $35/barrel?

Oil and natural gas exploration -- geology and geophysics
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is exploration dead at $35/barrel?

Post by Michael_Seman »

Although I noticed that natural gas price has recovered to February levels.
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Re: is exploration dead at $35/barrel?

Post by GuyM »

There's a couple of things to think about.

The first is that company valuations have been based on reserves, not the cost of production of those reserves.

The Saudis have long understood that we will not be producing every drop of oil ("the stone age did not end because we ran out of stone"), and hence every drop of oil that costs >$45/bbl to produce from US uncoventional resources is a drop that won't come from somewhere else.

So - with the current market shift, people are starting to ask some hard questions - especially in the US shale patch. You can look up the reports, bur for a long while there's been a concern that shale was a law-of-diminishing returns; the cashflow generated by production was ploughed back into new wells to increase production, but with little-to-no profit. The "bull" market worships growth at any price - indeed it prices this into shares. If we are done with a "bull" market for a while, money will exit.

Meanwhile, outside the shale patch companies are looking for resources that will be <$US45-60 production costs based on shale (evetually) running our of steam. Remember these companies have diminishing low-cost reserves, and are no longer looking for reserves at any price. It takes 4-8+ years from first licencing a block to oil production, and they are looking out that far, in new areas. The current decline in oil use will not extend out beyond the current and immediate crisis, as its broadly a function of increasing population.

What is happening is, I suspect, a shift back towards big fields prospecting. People are not after the higher risk complex geology areas that required ultra-specialist techniques. This is a more of a pragmatic industry, than an innovative one.

The bigger short-term problem is likely to be travel restrictions around COVID-19 and so on limiting international crew transports and so on.

So - short term blip in some areas, is my best guess. But YMMV, as alwasys.
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