free html hit counter Peak Oil Debunked: 83. DO FLAGGING DISCOVERIES BY THE OIL MAJORS PROVE PEAK OIL?

Tuesday, September 06, 2005

83. DO FLAGGING DISCOVERIES BY THE OIL MAJORS PROVE PEAK OIL?

Comment from anonymous reader:
The thing is, you ignore the complete picture. Why is Chevron buying out other oil companies? Hmm, maybe that's the best way to make money from the remaining oil, because there isn't enough to just go and find?

have you commented on the declining rates of oil discovery? How much oil do we currently consume as a civilization compared to how much we discover?

Do you know that in 2003 big oil spent 8 billion looking for oil, but only found 4 billion dollars worth?

Anonymous is referring here to an article titled "Top oil groups fail to recoup exploration costs" published by the New York Times on Oct. 10, 2004. From the article:
Wood Mackenzie [an energy consulting firm] says the top-10 oil groups spent about $8bn combined on exploration last year, but this only led to commercial discoveries with a net present value of slightly less than $4bn. The previous two years show similar, though less dramatic, shortfalls.Source
This is yet another case of peak oiler spin. In the report, the term "top-10 oil groups" refers to the major IOGCs (International Oil and Gas Companies) such as BP, Exxon/Mobil, Chevron etc. The idea is: if the major IOGCs aren't finding enough oil, the earth must be running out of oil. This spin deceptively ignores the fact that the IOGCs are being SHUT OUT of oil and opportunities by the National Oil Companies (NOCs), who control most of the world's reserves and promising areas:
While geographic preferences based on corporate presence or long-standing relationships are often factors, it is quality reserves with quality fiscal terms that the companies are after; it is that objective that ultimately guides them in targeting assets and allocating investment dollars. Of total global oil and gas reserves, only about 14% are fully open for IOGC competition, where governments regulate the activities of oil and gas companies, but do not themselves participate in the exploitation of reserves (largely in the US and the UK). A further 17% of global oil and gas reserves are held by Russian companies, both privatized and public, where the degree of openness, the nature of IOGC access and the competitive environments and terms are still evolving and basically still unclear.
(Click picture for a clearer image.)

Only 11% of global reserves where NOCs are present and governments own the resources are open for IOGC to have equity access to reserves. By far the largest portion of global reserves, 58%, are held by governments and NOCs where IOGCs do not yet have equity access; in part of this portion, IOGCs can have some limited involvement through service contracts or technical service agreements, but they cannot have equity access to reserves. In spite of this, out of some $180bn in capex spent in the global E&P sector in 2002, $140bn was spent by publicly traded companies. The situation is only slightly different if one considers only natural gas, where Russia becomes more dominant, holding about 31% of the global reserve base. Reserves with full IOC equity access amount to some 10% of world reserves, and only 8% of world natural gas reserves where NOC are present are open to IOGCs. When it comes to the remaining 51% of global gas reserves, IOGCs have only limited access, through service contracts, but no equity access.Source
In layman's terms this means: the NOCs (like Aramco, the Saudi national oil company, or PetrĂ³leos de Venezuela, the Venezuelan national oil company) regard the oil on their territory as the property of the state, and will not let "majors" like BP own it. This fouls up the IOGC business model, so they don't bother exploring there, even though that's where the oil is. Russia has similar issues after the Yukos affair; the majors can't be sure of the security of their investment, so they stay away. This is why the IOGCs are left to muck around in places like the US Gulf of Mexico, west Africa and the Caspian Sea, as noted by the NYT article. They are only exploring the least promising fraction of the earth, not the whole earth.

The report acknowledges these realities in the last two paragraphs:
Mr Plummer said even though "companies have been slow to react", exploration spending is likely to rise on the back of record oil prices. However, "a number of constraints will continue to act on exploration performance, the most important of which is being access to material opportunities".

The findings reflect the fears of some companies, who claim they need greater access to Opec nations to boost reserves.(Source: NYT article cited above)
Final note) In the interests of accuracy, we should point out that the $4 billion of oil discovered in 2003 by the top-10 is now worth about $5 billion, and in fact will be worth $8 billion if the price of oil rises to about $100.

2 Comments:

At Wednesday, September 7, 2005 at 5:01:00 AM PDT, Anonymous Anonymous said...

I suggest you check out a very detailed analysis of oil production data and a fair projection of when Peak Oil will occur by a Dutch researcher.

http://www.peakoil.nl/images/oil_production_outlook_2005-2040.pdf

His projection is between 2010 to 2015.

 
At Wednesday, September 7, 2005 at 5:20:00 AM PDT, Blogger JD said...

Thanks anon,
I know that report, and will be posting on it in the near future.
JD

 

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