Shell Goes Full BP

Guest “Who gives a flip about what Europe does?” by David Middleton

SEPTEMBER 21, 2020 12:47 AM UPDATED 3 DAYS AGO
Exclusive: Shell launches major cost-cutting drive to prepare for energy transition
By Ron Bousso

5 MIN READ

LONDON (Reuters) – Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.

[…]

Shell is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects, two sources involved with the review told Reuters.

Shell now wants to focus its oil and gas production on a few key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.

[…]

Reuters

Firstly, leave it to a journalist to totally frack up an article.

Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.

MA in History of International Relations

No. Shell is not “looking to slash up to 40% off the cost of producing oil and gas”… They are looking at slashing upstream capital expenditures by 30-40%. They are looking to produce less oil and gas in the future because of an imaginary energy transition. Surprisingly, Tsvetana Paraskova of Oil Price Dot Com got the story right, even though she relied on the Reuters article as a primary source.

Shell is looking at ways to cut costs in its biggest division currently, the upstream, by 30 percent to 40 percent via cutting operating costs and slashing capital expenditure (capex) on new oil and gas exploration and production projects, two sources involved in the cost-cutting review told Reuters. The Anglo-Dutch supermajor will aim to streamline its upstream division by focusing on just a few hubs such as the U.S. Gulf of Mexico, the North Sea, and Nigeria, according to Reuters’ sources.

[…]

With the push toward a greener portfolio, Shell joins peers such as BP, which said in its new strategy last month that it would reduce its oil and gas production by 40 percent by 2030 through active portfolio management and would not enter exploration in new countries.  

Oil Price Dot Com

My first thought was, “Fantastic!”… By going full BP, Shell would open up opportunities for real oil companies in the Gulf of Mexico… But, Shell either knows that President Trump will be reelected or that Joe Biden isn’t as retarded as he acts. Shell plans on remaining the 800 pound gorilla in the Gulf of Mexico. Shell is the top oil and gas producer in the Gulf of Mexico, by a wide margin. BP ranks second in both oil & gas production.

Top 50 Oil Producers US Gulf of Mexico

RankBusiness Association Name Gas (mcf/d)  Oil (bbl/d) 
1Shell Offshore Inc.        649,437    457,560
2BP Exploration & Production Inc.        242,015    324,160
3Anadarko Petroleum Corporation        203,378    221,731
4Chevron U.S.A. Inc.          99,349    182,467
5Union Oil Company of California          21,526      89,994
6Murphy Exploration & Production Company – USA        159,892      83,757
7Hess Corporation        158,913      61,365
8LLOG Exploration Offshore, L.L.C.          91,925      53,428
9Fieldwood Energy LLC        158,146      52,699
10BHP Billiton Petroleum (GOM) Inc.          21,488      48,736
11Kosmos Energy Gulf of Mexico Operations, LLC          31,446      35,053
12Exxon Mobil Corporation          12,968      33,576
13Talos ERT LLC          39,465      28,834
14Arena Offshore, LP        122,995      26,907
15EnVen Energy Ventures, LLC          34,886      26,511
16Walter Oil & Gas Corporation        116,806      24,258
17Cox Operating, L.L.C.        110,910      23,956
18Beacon Growthco Operating Company, L.L.C.          27,401      20,809
19Talos Petroleum LLC          35,933      20,165
20W & T Offshore, Inc.          77,966      18,172
21Eni Petroleum Co. Inc.          38,233      14,021
22Shell Gulf of Mexico Inc.          80,616      12,850
23Cantium, LLC          10,896      12,300
24GOM Shelf LLC          17,923        6,360
25ANKOR Energy LLC          14,785        5,513
26Renaissance Offshore, LLC          15,181        2,942
27Byron Energy Inc.            3,825        2,524
28Talos Energy Offshore LLC          15,985        2,057
29Equinor USA E&P Inc.            1,546        1,829
30Castex Offshore, Inc.          29,348        1,720
31Marubeni Oil & Gas (USA) LLC            2,600        1,308
32ConocoPhillips Company            2,134        1,098
33Sanare Energy Partners, LLC          14,054        1,092
34Helis Oil & Gas Company, L.L.C.            4,200           994
35Energy XXI GOM, LLC            3,463           948
36W & T Energy VI, LLC          15,648           943
37Apache Deepwater LLC            1,278           885
38Ridgelake Energy, Inc.               257           718
39MC Offshore Petroleum, LLC               694           662
40GoMex Energy Offshore, Ltd.                 15           651
41Deepwater Abandonment Alternatives, Inc.               731           472
42Tana Exploration Company LLC            3,280           334
43Bois d’ Arc Exploration LLC               154           251
44Whitney Oil & Gas, LLC               234           213
45EPL Oil & Gas, LLC                 82           191
46Peregrine Oil & Gas II, LLC               118           158
47Contango Operators, Inc.          23,414           133
48Flextrend Development Company, L.L.C.                 76             79
49MP Gulf of Mexico, LLC                 42             26
50Cochon Properties, LLC            3,028               5
BSEE

Most people have probably never heard of most of the companies on this list… Some companies are listed as multiple business associations, due to their corporate structures. Most of the companies that you probably never heard of, got on this list by acquiring the assets of companies that you had heard of. Shell and BP divesting Gulf of Mexico assets in the current price environment would be fracking awesome for the companies you probably never heard of. But, I digress…

Why would oil companies commit suicide?

The recent headlines have been full of stories detailing how the ChiCom-19 COVID-19 disease has brought Peak Oil back from the future and how all the oil companies are going green.

Can These 3 Oil Giants Turn Into Renewable Energy Stocks?
Don’t miss out on the transformation of a lifetime.

Daniel Foelber
Aug 22, 2020

The energy transition is well under way as renewable electricity capacity continues to grow around the world. Unbeknownst to many is the role that oil and gas companies are playing in this transition, a handful of which have recently upped the ante considerably.

Let’s look at three oil majors that are aggressively targeting renewable investments to determine if they can transform themselves into renewable energy stocks over the coming decades.

Renewables are skyrocketing
From 2010 to 2019, over 1,400 GW of renewable energy capacity was added throughout the world.

[…]

Shell
First on this list is Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), the largest European oil major by market capitalization. According to Bloomberg, Shell is leading its European peers: “European majors closed seven times as many deals with renewable-electricity and storage companies as their U.S. counterparts since 2010.”

[…]

BP
BP (NYSE:BP) doesn’t just want to increase its renewable portfolio, it wants to downright dominate renewable energy.

[…]

Equinor
Equinor ASA (NYSE:EQNR) is Norway’s largest oil and gas company. With the government and Norway’s national pension fund owning 70% of the company, Equinor’s interests and strategical shifts are naturally going to be somewhat aligned with Norway’s agenda, renewable energy focus, and long-term support of the Paris Agreement.

[…]

The Motley Fool

After a lot of babbling about “skyrocketing” renewables, the mythical “energy transition” and Euro-virtue signaling, young Mr. Foelber actually hits the nail on the head.

In April, Shell and Equinor cut their dividends by two thirds. In early August, BP cut its dividend in half. Even with the cuts, Shell still yields a respectable 4.1%, BP yields 5.5%, and Equinor yields 2.2%. Meanwhile, ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) haven’t cut their payouts, and yield 8.2% and 5.7%, respectively.

Shell, BP, and Equinor also have some of the weakest balance sheets of the oil majors, and sport higher debt to capital ratios and debt to equity ratios compared to their American counterparts.

And although shares of Equinor are down the least of all the oil majors, BP and Shell are both down over 40% year-to-date (YTD), the worst of the cohort. 

A long road ahead

Exxon’s long-term dedication to oil and gas and Chevron’s current status as arguably the best oil stock make it unlikely either company will be a strong renewable force in the coming decades. However, the impacts of the COVID-19 pandemic seem to have accelerated the energy transition for Shell, BP, and Equinor. All three businesses are struggling, and are likely exhausted by the volatility and low prices of oil and gas right now.

Shell remains a natural gas powerhouse, and it was just last year when the company had the best free cash flow of all the oil majors. Therefore, Shell probably won’t undergo a full-on transformation. However, BP and Equinor seem determined to transform into renewable energy stocks. Crippled by a weak balance sheet, the only thing surprising about BP’s dividend cut and renewable push is that they didn’t happen sooner. As for Equinor, the company’s expertise in offshore exploration and production, government interest, depleting offshore oil and gas assets, shallow coastline, and first-mover advantage into one of the highest growing subcategories of renewable energy make it ideally positioned to dominate offshore wind.

[…]

The Motley Fool

This is worth repeating:

However, the impacts of the COVID-19 pandemic seem to have accelerated the energy transition for Shell, BP, and Equinor. All three businesses are struggling, and are likely exhausted by the volatility and low prices of oil and gas right now.

Worth repeating

Mr. Foelber also provided a couple of really good charts:

Figure 1. Debt to capital and debt to equity for failed European oil companies and American oil companies. The Motley Fool

The European oil majors are financially hurting, are being strangled by their own governments and expecting the strangulation to worsen unless they stop being oil companies. If BP, Shell and Equinor truly don’t want to remain oil companies, I have two words for them…

And Equinor really ceased to be an oil company a long time ago…

“The energy transition is well under way”

Horst schist!

In 2019, the world consumed more fossil fuel energy (492.3 exajoules) than the total primary energy it consumed as recently as 2009 (480.6 exajoules). There is no energy transition “underway”…

Figure 2. It’s a fossil fueled world. BP Statistical Review of World Energy

For that matter, there has never been an “energy transition.” We currently consume more biomass for energy than we did before we started burning coal.

Figure 3. No energy transitions for you! “There Has Never Been An Energy Transition

The second quarter of 2020 was a global economic catastrophe. It was caused by a Chinese Communist virus and governmental overreaction to that virus. It resulted in a sharp drop in energy consumption, comparable to a deep recession. It did not herald in a new era of people willingly staying home and freezing in the dark.

ChiCom-19 COVID-19 forced many of us to work from home for most, if not all, of the past six months. No one in the real world views this as the “new normal”… It’s more like a prolonged hurricane evacuation.

Returning to the real normal

Commuting Patterns During COVID-19 Endure; Minorities Less Likely to Work from Home

Alexander Bick, Adam Blandin and Karel Mertens September 01, 2020

COVID-19 forced many businesses to scale back or cease operations in their regular workplaces because of government-mandated closures, concern for employee health or lack of customers.

Some workers transitioned to working from home relatively easily. In many jobs, however, performing regular work activities from home is impossible, forcing many individuals to become inactive or look for a new job.

In earlier research based on data from the Real Time Population Survey, a novel online labor survey of households, we found that 35.2 percent of those employed in May worked entirely from home, up sharply from 8.2 percent of those employed in February. Subsequently, we find a bounce-back since May in employment growth within the previously low work-from-home sectors.

Many Continue Working from Home Daily

Chart 1 compares the February commuting behavior of the workforce (ages 18 to 64) with commuting behavior in subsequent months. Changes in commuting patterns during the pandemic are the combined effect of increases in working from home and decreases in employment.To better distinguish between the role of home-based work and declines in employment, all numbers in Chart 1are expressed as fractions of February employment rather than as of the workforce in the current month.

In May, only 37.8 percent of the pre-pandemic workforce commuted on a daily basis, compared with 73.8 percent in February. At the same time, the share working entirely from home rose from 8.2 percent in February to 26.0 percent in May (both as a fraction of February employment). Moreover, 26.1 percent of workers were no longer employed in May.

Since May, the number of daily commuters (as a fraction of pre-pandemic employment) rose gradually to 49.0 percent in August—still well below pre-pandemic levels. Over the same time period, the share of nonemployed decreased to 16.0 percent of February employment.

The fraction of entirely home-based workers declined slightly in August relative to earlier in the pandemic but remained very high at 20.3 percent. As a ratio of actual employment rather than pre-pandemic employment, 24.2 percent of workers ages 18 to 64 worked entirely from home in August, down from 35.2 percent in May.

[…]

Federal Reserve Bank of Dallas
Figure 4. Commuting rate. Federal Reserve Bank of Dallas

Many companies began returning to work in May, as states began reopening their economies. The reopening led to a sharp recovery in gasoline demand and partial recovery of oil prices. The reopening and return to commuting slowed and was partially reversed when some states experienced a brief resurgence in COVID-19 cases.

Figure 5. US gasoline demand. EIA This Week in Petroleum

Despite the stalled return to commuting, gasoline stocks are back in the normal range for this time of year.

Figure 6. US gasoline stocks. EIA This Week in Petroleum

Crude oil stocks are on a trajectory to soon be back into the normal range.

Figure 7. US crude oil stocks. EIA This Week in Petroleum

Goldman Sachs now expects oil prices to rally to $55-65/bbl by the third quarter of 2021.

Analysts at the bank forecast international benchmark Brent will rally to $65 per barrel from $45 per barrel by the third quarter of 2021 and settle at $58 by end-2021. West Texas Intermediate crude is now forecast to hit $55.88 from $51.38 next year.

“Key to the resilience of spot prices, despite stalling inventory draws this summer, has been the steady rally in long-dated prices,” Goldman Sachs said in a note dated August 30.

Going long on deferred Brent prices would result in an improved risk-reward for investors looking towards an “effective portfolio hedge” against uncertainty, analysts said in the note.

“There is a growing likelihood that vaccines will become widely available starting next spring, helping support global growth and oil demand, especially jet,” the note said.

Business Insider

In an even more bullish “forecast,” the CEO of Russia’s Gazprom Neft expects crude oil demand to fully recover to pre-pandemic levels by the second half of 2021.

When will US oil production begin to rise again?

Next year, if Goldman Sachs’ forecast comes to fruition. Since 2009, US oil production has increased when the benchmark US oil price, West Texas Intermediate (WTI), has been above $45/bbl.

Figure 8. US crude oil production and WTI price. (EIA)

The red boxes outline periods when oil prices were steadily above $45/bbl and production was rising. When oil was steadily lower than $45/bbl, production declined. When oil prices rise above $45/bbl in a sustained manner, we can expect to see drilling activity pick up again.

This analysis was published in December 2019:

Oil And Gas Production Forecast: 2020 And Beyond
Growth slows in 2020, hinging on global demand and the market’s ability to support continually increasing output.

Rob McBride, Jesse Mercer and Brendan Nealon, Enverus Energy

Mon, 12/02/2019

[…]

Although market conditions today do not portend outright production declines as witnessed in 2015-2016, it does appear to be the case that the slowdown in global economic activity will diminish the outlook for petroleum liquids consumption and, therefore, will have a cooling effect on outright crude oil prices. The question on most people’s minds today is what will happen to U.S. tight oil production in the aggregate if the price of WTI continues to linger in the low $50s. Would producers further reduce capex at these low prices, and what price level would be required to convince producers to increase capex again so that the recent slowdown in production growth can be reversed?

Figure 15 summarizes the impact on total U.S. crude and condensate production amid various price environments for WTI crude starting in January 2020 (for the balance of 2019, Enverus assumes operators will hold true to their annual production guidance estimates). Given the breakeven analysis presented earlier, it should be no surprise that $50/bbl is the level that keeps U.S. crude and condensate production growing. In fact, it would not take too much of a decrease in prices below $50/bbl WTI to send production into an outright decline in 2020. Note the white space between the lines; starting at $50/bbl production rises modestly with each $5/bbl increase in the price of WTI. Contrast that with the drop in output over the next year when the industry takes the price of WTI down from $50/bbl to $45/bbl.

[…]

Hart Energy

Clearly, no one was expecting the one-two punch of COVID-19 and the Soviet-Saudi price war at the time it was written, but the $45-50/bbl threshold for growth was clearly laid out.

Figure 8. (Hart Energy Figure 15) US crude oil price sensitivity. (Enervus/Hart Energy)

Companies will start layering on hedges and production will start growing again, starting with the Permian Basin.

As prices climb toward $50/bbl, other tight oil plays should see a resumption in growth.

Figure 9. Crude oil price sensitivity by basin. (Enervus/Hart Energy)

Unlike 2016, US operators had already begun to trim CapEx prior to the crash due to softness in oil prices. When the bottom fell out in March, the industry rapidly slashed CapEx and, in many cases, even shut in production.

Figure 10. Quarterly CapEx 2016-2019. (EIA Financial Review: Second-Quarter 2020)

Most of the shut in production has been brought back on, but growth won’t ensue until prices recover a bit more.

“Déjà vu all over again” or is it?

Back in November 2014, OPEC declared war on US “shale” producers. US crude oil stocks immediately shot through the roof and it took nearly 3 years to work off the glut. 2020 looks very different.

Figure 11. US crude oil stocks, thousands of barrels. (EIA)

Since 2014, the industry has adjusted to lower prices and was clearly more prepared for this price shock than the last one. Oil’s well that ends well.

95 thoughts on “Shell Goes Full BP

  1. As always, David, an extensive & well-researched article that provides a welcome antidote to all the green genuflection & viral hysteria that seems to dominate the news these days! Keep up the good work! Thanks!

  2. The second quarter of 2019 was a global economic catastrophe. It was caused by a Chinese Communist virus and governmental overreaction to that virus.

    I suppose that would be 2020.

    As you say oil companies are having serious problems because the cost of extracting oil has increased greatly in the 21st century and the price of oil is insufficient. On top of that the regulatory environment is less supportive of oil companies due to climate concerns. Now they have to add a prolonged global economic crisis that is going to take place, so they see the situation worsening, not improving, over the next years. The cuts in upstream capital will reduce future oil extraction.

    All of this is just bringing forward the peak oil that a few of us was seen in the near future and now see in the recent past. More and more people will see it this way.

    • Javier,
      In 1963 I was employed in a Scottgas service station in Wilmington Delaware gasoline was at $0.10 ( ten cents ) a gallon, looking at today’s prices by comparison a loaf of bread would be $25,00

    • So you saying that peak oil is still in the near future?

      Most predictions of peak oil were in the past, not the near future, and they were wrong. Maybe you are one of the few that will be right.

      • Are you actually arguing that low oil prices are evidence of peak oil?

        Isn’t it obvious? High prices bring more oil. Peak Oil can only take place because of low prices. Peakoilers never understood Peak Oil. They thought it was a geological thing, and oil would be scarce and highly priced. It is not. The geology is only part of the equation. The economy is a more important part, and in the end everything is a reflection of the thermodynamics of the energy that powers every aspect of our civilization, including the economy. Any civilization is an energy dissipation mechanism. As the civilization gets more complex there is a diminishing return. When the return approaches zero for any added complexity the civilization is ripe for a simplification. When that happens competition turns into conflict and the good times give way to the bad times.

        In January 2010 the journal Nature published an article about predictions for the next decade called “2020 visions”. They were all rosy predictions that are now fun to read. In a now famous letter to the journal in response to the article, Peter Turchin predicted an increase in social conflict for the following decade due to the generational cycle in conflict, one of the several secular cycles he has studied.
        https://www.nature.com/articles/463608a.pdf
        His prediction came out true as he himself analyzed in a 2020 article:
        Turchin, P., & Korotayev, A. (2020). The 2010 Structural-Demographic Forecast for the 2010–2020 Decade: A Retrospective Assessment.
        The article does not include all the social conflict brought about by the death of George Floyd as it was written in January. Conflict is now at a high for at least the past five decades.

        Social conflict is the answer of people to a system they perceive is becoming increasingly unequal. As oil became more expensive the economy turned to debt to be able to continue growing, but those located close to were the debt is having its effect are becoming richer, while those attached to the real economy where the debt has little effect are becoming poorer. The result is an affordability crisis. People can’t afford an expensive oil, so the economy can’t afford an expensive oil. If the oil becomes expensive demand is destructed. If the oil becomes cheap production is destructed. The dynamics are terrible to watch. Luckily most people are unaware of what is happening and what is going to happen. The coronavirus crisis is just a catalyst that is going to accelerate the whole thing. That is why Peak Oil has a good chance of having been established in 2018, and that is why it matters.

        But please, ignore everything I said. You are not supposed to know it anyway and it won’t do you any good. There is nothing we can do about it. We are living in interesting times.

        • You almost got it right when you said peak oil is a function of price. The key is that price is a function of demand and supply. We have plenty of supply and demand won’t go down until we find something else that can produce all those BTUs cheaper. Most likely some form of nuclear energy. “Missed it by THAT much!”

          • “The key is that price is a function of demand and supply. ”

            Agree. That’s why we need to change laws to allow for decades worth of mothballing of US fields not profitable now, and and allow for forgiveness of timed drilling obligations. When the fundamentally lower OPEX and CAPEX/boe oil and gas from the FSU and mideast is produced off, shale, offshore, will, to some extent, return. It’s just bad luck that almost every mid/late life US petroleum pro is now stuck. They should be retrained to do useful work….

          • Google “idle iron”… Better yet, I’ll Google it for you…

            What is the “idle iron” policy and why does it exist?

            In October 2010, BSEE published Notice to Lessee (NTL) 2010-G05, “Decommissioning Guidance for Wells and Platforms” (sometimes referred to as the “Idle Iron” policy) to clarify existing regulations that apply when a well or platform is “no longer useful for operations,” and needs to be plugged (in the case of a well) or removed (in the case of platforms and other structures). NTL 2010-G05 clarifies that BSEE orders wells that were not useful (had not produced for five years) at the time the NTL was published to be plugged by October 2013. Any well that became “idle” or not useful for lease operations subsequent to the NTL’s publication is expected to be plugged no later than 3 years after the well became “idle.” The NTL also clarifies that BSEE will enforce the decommissioning of platforms considered “idle” or no longer useful at the time the NTL was published by October 2015. Any platform that became “idle” or not useful for lease operations subsequent to the NTL’s publication is expected to be decommissioned no later than 5 years after the platform became “idle.”

            Platforms affected by the “Idle Iron” NTL are decommissioned in accordance with OCSLA regulations as described in Q1. The final disposition of the material may be a scrap yard, fabrication yard, or an artificial reef site.

            In the wake of several destructive hurricanes between 2004 and 2008 that severely damaged active and inactive oil and gas infrastructure in the Gulf of Mexico, BSEE published the “Idle Iron” policy so that inactive facilities and structures would not litter the Gulf of Mexico or threaten increased risks to the marine environment and navigation. Inactive wells and platforms are susceptible to the adverse effects of severe weather. Inactive platforms may topple during storms and cause significant environmental contamination (such as the release of hydrocarbons to the surrounding waters), damage operating infrastructure, and result in new navigation and safety hazards.

            https://www.bsee.gov/faqs/what-is-the-idle-iron-policy-and-why-does-it-exist

            Why do you think the Western GOM is now nearly devoid of infrastructure?

            Every publicly traded company has to report their ARO liability on their balance sheet. Every purchaser of an asset will verify the ARO before closing the deal. The seller will also verify the buyer’s ability to cover the ARO, or the seller could be stuck with the bill.

          • “What is the “idle iron” policy and why does it exist?”

            Since you’re not in operations, you are unaware of the annual Kabuki Theatre surrounding these ops, offshore and on.

            Every year, your petroleum engineering staff budgets for aggressive P&A efforts. And every year, their sups tell them, “This is a bad year for this for [fill in the blank]. Go BS your regulators on why this field/ facility does not need these efforts this year. “Looking at new development”. “Still a well that is making it’s costs” Whatever. You know the drill”

            So, we do so. We make twice what they do, and select accordingly, so we have few problems bull dozing them.

            As I said, don’t know your employer. But if you don’t believe me, AGAIN, read the weasel words w.r.t. asset retirement in your own company’s last quarterly. I’ll bet you a coke that it essentially says that, if the friendly feds even made you fund the bonds that YOU told them would be adequate (but that won’t be), let alone show cash in fist for your obligations, you would be showing rabbit ears. I make the bet confidently because most of your class of companies have similarly cornered themselves, in order to keep those boni and dividends coming until the bitter end…

          • I am very involved in operations and have been for nearly half my career, particularly the six years as VP of Exploration for the E&P subsidiary of a company that started out as an offshore P&A company. We largely built that company by acquiring late life fields. Just about every geo working for small GOM E&P’s is heavily involved in operations.

            You are nothing but an arm waver.

          • “I am very involved in operations and have been for nearly half my career, particularly the six years as VP of Exploration”

            An Exploration VP is as far from actual production/exploitation ops – the subject here – as possible. It’s both a vital job and a pimp job for your prospects. It’s undeniably vital to E&P sustainability, but you know less about actual asset retirement ops than the 25 year old Halliburton cement foreman who pumps the cement for them….

          • This sort of thing is not uncommon in GOM A&D…

            9. Restricted Deposits for ARO

            Restricted deposits as of December 31, 2019 and 2018 consisted of funds escrowed for collateral related to the future plugging and abandonment obligations of certain oil and natural gas properties.

            Pursuant to the Purchase and Sale Agreement with Total E&P USA Inc. (“Total E&P”), security for future plugging and abandonment of certain oil and natural gas properties is required either through surety bonds or payments to an escrow account or a combination thereof. Monthly payments are made to an escrow account and these funds are returned to us once verification is made that the security amount requirements have been met. See Note 16 for potential future security requirements.

            https://www.wtoffshore.com/investors/sec-filings/all-sec-filings/xbrl_doc_only/2339

            When we buy a used car, we often times have to escrow the cost of scrapping that used car… So, any time I look at an M&A opportunity, ARO is a YUGE factor.

          • and demand won’t go down until we find something else that can produce all those BTUs cheaper.

            Demand actually goes down every time there is a crisis, and we are in for a long one. Then you have countries where demand went down 13 years ago and hasn’t recovered. Maybe it will never do.
            https://www.statista.com/statistics/264415/oil-consumption-in-spain/
            So the hypothesis that “demand won’t go down” is not as solid as it looks. Extrapolating linear trends goes well until it doesn’t. Then most people are very surprised.

            Peak Car took place in 2017 so far. This was one year before Peak Oil. Three years before the coronavirus. Things are not what they look. We were already going down before the pandemic and before the economic crisis. Now add those.

  3. Good report with lots of useful data, David. Remember when the company objective was “Maximize Shareholder Wealth”? Now it’s “Try To Avoid Senseless Attacks By Looney Tunes And Idiots and by the way try to identify a niche where we can operate with some semblance of objectivity”. The demand by virtue-signaling governments for public investor discard of dirty oil stocks forces some attention to a protective mechanism, sort of like the cloaking device from Star Trek. When greenies switch to nuclear I will believe their comments about less Big Oil, until then their comments are blowing in the wind, except when the wind doesn’t blow and the sun doesn’t shine and they are left no choice but to fire up some Big Oil stuff.

  4. David,
    Thanks for another interesting and informative post!
    Once again, the purveyors of the Green devolution show themselves to be living in their own heads! There seems to be no lack of room for them there; presumably from the vacuous nature of their intellects!
    Space; the final frontier…
    Hopefully we will be back to normal soon, with a Trump re-election and the ChiCom-19 virus in our rear view mirror! Lower gas and oil prices will help me in my exploration of the mountains of the Southwest, looking for interesting geology and trout streams!
    What is the correct caliber for trout fishing; .22 or .45? I’m thinking about returning to my first love: .357!

    • I recall reading some years ago that firearm fishing is a thing. The trick is to allow for the distortion of the water (as in bow fishing) and try to get the butllet to pass close to the fish’s head. The shock is sufficient to stun the fish which can then be gathered. The .357 should be perfect for that. I don’t think you would be able to slice off very nice fillets if you hit the fish with the bullet though.

    • Well, Mythbusters pretty much put the kibosh on shooting things under water. Unless you know the target is less than 3 feet down, no standard bullet goes any further. They even tried a Barrett 50 cal BMG to no avail.

    • Abolition Man, where I grew up (?) in SW Oregon some local young men threw dynamite into the pool below the South Umpqua Falls, and collected several dead trout. Later that day they discovered a young rattlesnake and tried to stuff it into an empty beer bottle (that’s a clue) and were bit repeatedly by the young rattlesnake and two of them ended up in the hospital. Stick to guns?

      • I did a little fishing with handgrenades in Vietnam.

        I would throw one in the water, it would explode, fish would float to the surface, and the Vietnamese kids lining the banks of the creek would jump in to collect their prizes.

        My World War II uncle used to tell me stories about fishing with handgrenades during his war, so I had to try it myself. 🙂

  5. As much as I am a big fan of Mr. Middleton’s (and read everything he writes with great interest), I think the following should be pointed out.

    With ExxonMobil’s current dividend yield of 10.1%, the stock market is clearly and plainly telling you that it expects the dividend to be cut.

    ExxonMobil’s trailing twelve-month cash flow is not sufficient to cover the current dividend.

    Both XOM and CVX are included in Standard & Poor’s list of “Dividend Aristocrats” (meaning both companies have not only paid their dividends for 35 years in a row, they have increased their dividends annually over the same period). Both companies take pride in that inclusion and will do everything in their power to remain on that short, distinguished list. Having said that, both companies are managed by people who recognize that it would be foolish and imprudent to jeopardize their company’s financial situation solely for the purpose of paying the current dividend. The whole object is to live to fight another day— if a dividend cut is necessary, it will occur. All shareholders and prospective shareholders should be aware of these facts.

    • Q2 2019 Q3 2019 Q4 2019 Q1 2020 Total
       Net Operating Cash Flow   $    5.95  $    9.08  $    6.35  $    6.27  $  27.65 Billion
       Quarterly Dividend   $    3.72  $    3.72  $    3.72  $    3.72  $  14.88 Billion
      • I’ve started and managed a few non-profits…not on purpose, mind you.

        My income has always been in the six figure range. That’s if you count the dollar sign, decimal point, and either a plus or minus sign in front of the number, plus the two decimal places, as figures. Which they are, I defy you to prove otherwise.

      • So what? That describes thousands of companies in the US. And they all use “accounting tricks”, this is normal business practice. By the way, how many multi-million companies have you started that are still running? It’s quite a rare accomplishment to do it even once, not to mention multiple times like Elon Musk has done. At this point I wouldn’t bet against him.

  6. If these alarmists would strive for “low carbon technologies” rather than meaningless (not really renewable) renewables , they might happen to stumble onto small modular molten salt nuclear reactors, a technology which honestly satisfies everyone, or should. Shell is transitioning their gas stations over to EV recharging locations, but that cannot happen without a greater EV transition.
    EV batteries are getting so good (and cheaper) that they can easily match gas powered vehicles for such things as driving range (the new Lucid Air goes 517 miles on a single charge and you can recharge 80% of the battery pack in less than 20 minutes. They also are about to have a lifespan of over a million miles and a cost of les than $100 per kWhr, or typically $5,000 to $10,000 per battery pack. And the batteries will be able to power all of the cars you own in your lifetime. EVs are also very quick, sometimes the fastest regular production cars on the planet (zero to 60 in 2.5 seconds)
    Electric cars are clearly the best technology and are almost available at the same price range as gas powered cars.

    • Ah yes a $170,000 vehicle not released yet is boasted to have a 500 mile EPA range test. How impressive, the EPA “range test” which no EV has ever matched in the real world and which most ICE beat in the real world. Hmm, I wonder why EV still only account for 1% of vehicles on the road despite the government telling us how great they are.

      https://www.caranddriver.com/shopping-advice/a32603216/ev-range-explained/

      Unfortunately not everywhere in the world has San Diego weather which is the conditions promoted for EV stats. Throw in some strong head wind or below freezing temperatures and you achieve 50% of the sticker range. Want to travel faster than 55 mph? forget about those sticker ranges. Charging your battery in 100+ F heat, expect more rapid than advertised battery degradation.

    • “…EV batteries are getting so good (and cheaper) that they can easily match gas powered vehicles for such things as driving range (the new Lucid Air goes 517 miles on a single charge…”

      517 miles on a charge? In Wisconsin, in January? Ummm…yea. How much do these batteries like the cold weather?

      Still no recharging stations within 10 mile radius of where I live according to one website where I checked, and the radius is actually probably even wider than that. Gasoline fill-up stations everywhere.

      I am supportive of the molten salt reactor ColMosby and hope it finds its way to commercial viability someday, but there are no guarantees until we at least see a demonstration plant up and running. Numerous companies working on the MSR with govt support, and that is good. But we will have to wait and see.

    • You see, this is the thing: you can drive more than 517mi, in any weather, heat or cold, in an ICE vehicle that costs you $10,000.

    • “Get woke, go broke.”

      Now that their long term fate as oil producers is sealed, they will whither away when the promise of renewables turns out to be a will o’ the wisp.

      And seriously, Steve, can’t an English major keep an eye on capitalization and punctuation? It has to be embarrassing that engineers posting on this site have a better handle on this than you do. I don’t believe I’ve seen a single post of yours that didn’t contain at least one type of error, and more typically, both.

    • So much easier to mine government subsidies where foolish legislatures pass “renewable energy mandates” than actually exploring and producing reliable fossil fuels

      And no grime on your tie!

      • GeologyJim-

        My thought exactly!

        BP, Shell, Exxon and Chevron are known for mostly producing (and marketing) liquid petroleum products. Who uses liquid petroleum products? The transportation sector (ships, cars, trucks, trains, aircraft). What does “renewable” (wind and solar) energy produce? Electricity. Who uses electricity? Everyone but the transportation sector.

        So I see this not as “going green,” but rather, as diversifying your customer base. And if your going to add a new income stream, as GeologyJim says, it’s easiest to mine government subsides.

    • This is what worries me. I bought some BP shares at the March low and was planning on buying more now the price has dropped again. At first I thought, fossil fuels aren’t going away, to it’s a safe bet. Now I’m thinking, the people running BP (and Shell) will actually sell their assets. They would then become “shell” companies producing nothing that doesn’t have government subsidies attached to it. The oil company would no longer be an oil company but another renewable, soon to go bust. The shares will become near worthless.

  7. This recession and demand drop is unlike recent ones, it has cut very deep, and the deepest cut are the servicers that don’t have production capital to keep cash flowing. One thing Dave didn’t go into was rig count, and one thing no one ever goes into is the other services similar to rig operators – casing crews, haulers, loggers, mud, etc. These have all been hit the hardest and it is much easier for them to layoff, stack rigs, and repurpose equipment than it is for them to put crews and equipment back together. When demand fully recovers, and it looks like it will because travel and exploration is built into the human soul, the supply will be harder to recover. The price will sling shot sometime in the near future, perhaps as early as late next year but probably sometime in 2022, assuming that the leftist luddites don’t somehow start winning politically.

    • Rig count will never get beyond 150 in the they US. They are only three men to a rig crew in a modern rig, it could be one but someone needs to stay at the rig to watch it if someone get hurt. The rigs themselves do all the work and drilling is all automated from day one. They also drill the holes in a third of the time. Gone are the mud trucks, gone are the pits and gone are the large crews. Oil drilling is not what it once was. In the horizontals drilling there are many holes drilled from one pad and the rig walks from hole to the next hole. Old days you need a crane to move the rig a few feet. Oil drilling is not what is was even fifteen years ago. Some who has spent years in the Bakken. Never on a rig but knew many people that use to and do work on the rigs.

  8. ” If BP, Shell and Equinor truly don’t want to remain oil companies, I have two words for them…”

    Is it just these “Eurocentric” outfits? Which of the 50 GOM involved companies on your list have upstream CAPEX budgets and/or recent actual upstream CAPEX spends anywherenear as large as they had a year ago? 5 years ago?

    As I’ve told you before – with crickets from you – most of the mid sizers on your list have market caps 1/2 – 4/5 down from 5 years ago. They also all have weasel words in their quarterlies telling their owners that if they had to come up with actual cash in fist for their Trumpian YUGE asset retirement obligations, they would be SOL. Unless these 50 are willing to fund their plugging, abandonments, and restorations with a per boe fund, based on their PDP. those costs will end up corporate welfarized on the rest of us, per coal and copper….

    • No one has CapEx as large as last year, much less five years ago… CapEx follows oil prices. The publicly traded companies in the EIA report have steadily reduced CapEx per BOE, while increasing production and maintaining ARO obligations.

      W&T Offshore is one of the companies in both the EIA Q2 2020 financial review report and top 50 producers in the Gulf of Mexico.

      W&T Offshore Announces Fourth Quarter and Full Year 2019 Results Including Year-End 2019 Proved Reserves and Provides 2020 Guidance

      March 04, 2020 16:45 ET | Source: W&T Offshore, Inc.

      […]

      2020 CAPITAL INVESTMENT PROGRAM

      Under current commodity pricing conditions, W&T intends to continue to generate free cash flow and focus on debt reduction and additional acquisitions. The Company’s preliminary capital expenditure budget for 2020 is expected to be in the range $50 million to $100 million, which excludes acquisitions. W&T has significant flexibility to adjust its spending up or down at any time since it has no long-term rig contracts or drilling obligations. Furthermore, the lower decline profile of the Company’s producing asset base allows reductions in capital expenditures without significantly impacting near-term production levels.

      W&T’s overall inventory of drillable projects remains strong and currently the 2020 capital program will be focused on lower-risk, high-return projects. In 2020, the Company also expects to spend about $15 to $25 million on asset retirement obligations (“ARO”) compared to $11.4 million spent on ARO in 2019.

      Despite the reduction in capital expenditures, W&T forecasts its full year 2020 production to be in the range of 47,100 to 52,100 Boe/d, reflecting an increase of 16% to 28% from full year 2019 average production of 40,600 Boe/d. Drilling is currently underway at East Cameron 338/349 in the Gulf of Mexico.

      https://www.globenewswire.com/news-release/2020/03/04/1995429/0/en/W-T-Offshore-Announces-Fourth-Quarter-and-Full-Year-2019-Results-Including-Year-End-2019-Proved-Reserves-and-Provides-2020-Guidance.html

      W&T even managed to generate free cash flow in Q1 and Q2 2020.

      https://www.globenewswire.com/news-release/2020/03/04/1995429/0/en/W-T-Offshore-Announces-Fourth-Quarter-and-Full-Year-2019-Results-Including-Year-End-2019-Proved-Reserves-and-Provides-2020-Guidance.html

  9. Sounds like they are realizing certain company tiers are inflated and looking to streamline the business more to me. Nothing really new, large companies “re-organize” a lot to adjust to the market.

    IMO the leaders of a move to a different energy source isn’t going to be those that make money on the old source. Whalers didn’t become invested in fossil fuels when discovered and oil companies are not going to invest in nuclear, molten salt, nor fusion reactors unless they see potential and it outweighs the cost of dismantling fossil fuel production in the future. But that requires a visionary and a solid plan to phase out oil into something more profitable.

    Until someone puts a dollar amount of profit on a renewable or new technology, looking to the oil industry to develop the next best energy is foolhardy.

  10. Your article should be mandatory reading for finance and energy ministers in the governments.
    For less technical politicians like the AOC, there is always the chart in Figure 2.

    • “For less technical politicians like the AOC, there is always the chart in Figure 2.” that way over her head, she just specialize in giving platitudes to her followers, none of it needs to add up.

  11. I watched the film Return to Eden by the Dutch guy who lives in a treehouse in Germany which was mentioned in a recent article on this site. He was interviewing German farmers who were growing maize as feedstock for biogas plants they had built on their land, no doubt all subsidised by the great German taxpayer and/or energy consumer. How does this make economic sense?

    The lunatics took over the asylum in the EU a long time ago, it seems.

  12. David, I notice that your Top 50 oil producers table shows bbl/day of production. Is that correct? The last place producer seems to be generating 5 barrels per day. Do they really track something that is probably less than natural seepage?

    • Its probably the crude oil equivalent of natural gas condensate produced from processing their natural gas. And yes, they do track and sell it. The profit margin in that business is razor thin. They sell every bit they can.

    • Every business entity that produces oil & gas from federal leases in the Gulf of Mexico pays royalties to the Federal government. They keep track of every barrel of oil and mcf of gas produced. Many of the business association names are small LLC’s. These are often elements of larger partnerships. This is particularly true of companies that were private equity backed and executed a series of acquisitions.

      Cochon Properties LLC probably has a interest in at least one natural gas well. 3,000 mcf/d and 5 bbl is about what a typical marginal gas well.

  13. Simple fact is the current and expected future price of oil does not justify expensive offshore exploration and development so companies are focusing on established, mature resources offshore and cheaper onshore production.

    The reference to climate change is just boilerplate PR.

  14. David, I must echo the thanks for the clear, cogent, documented essay. You never disappoint. I’m probably one of the few on this site who’ve worked on solar, FF, wind, nuclear, and LENR-CANR. FF rule, at least until someone really solves the LENR-CANR direct to electricity conundrum. There is no other low cost way to generate power, low cost in the sense that the total investment to keep the environment non-polluted is included. This makes solar, wind, and some nuclear very expensive. It’s just unbelievably cheap to burn FF.

    I had to do a study of the real leveled cost of generation of power, and even with essentially free fuel, the total cost is driven by the cost of generating electricity from the heat. That’s why the reference to the conundrum of direct to electricity with respect to LENR-CANR. Creating heat just puts you on the path to compete with FF and steam generation and there’s no relative advantage. You have to manage the heat budget no matter how you generate the heat. Steam is steam.

    Nuclear batteries which produce electricity directly from nuclear reactions without the necessity of making steam are the only real game changer. At this point there’s more than a little research necessary to reach that point. Fossil fuels will rule for a long, long time.

  15. I heard a similar story in the 1970’s. Then, oil was going to soon run out and the Oil companies, although flush with cash, were told by the experts of the day that they had to find other industries to branch out into.
    Esso Corporation changed its name to Exxon and ran big ads saying that they intended to become an energy company, not just an oil company.
    A relative working for Digital computer was interviewed by Esso officials because Esso was considering branching out into making printers. Not kidding.
    But, to know these things you have to have lived through them.

    • As hard as it is to believe, Exxon (née Esso, née Standard Oil of New Jersey) under the leadership of Chairman Clifton Garvin actually DID make the colossal mistake of getting into the typewriter/printer business in the form of Qyx.

      Under subsequent and more capable management (see Lawrence Rawl, see Lee Raymond), the company mended its ways and “stuck to its knitting.”

  16. I read somewhere that there is a mythical relationship between supply, demand and price which can spell success or failure for businesses. I guess it was just some propaganda from the anti socialist, radical free market, imperialists who built the modern world. Everyone knows when you are short on cash you can just print more, sneak it out of the back pocket of someone who actual works, or apply for a social justice grant from the government under the guise of saving the climate.

  17. Somewhere along the way industries that were “too big to fail” have decided to become “too green to fail”.

  18. Those Tesla batteries do not currently perform for one million miles – that’s why Elon is talking about a “new” million mile battery. Currently, drive a Tesla say 75000 miles, the battery capacity is reduced by some percent…maybe 10 percent. Ol’ Boone Pickens was an example of an “Oil” man who was really a “Money” man. Ol’ Boone said that since the wind came roaring down the plain in Oklahoma and Texas, huge windmill farms could be built there and the electricity be sent to Dallas and Houston and other large cities. He also proposed changing diesel engine trucks to natural gas powered ones. Ol’ Boone was heavy into NG at the time and the price was low.

  19. David,

    Reading your articles always cheers me up! As an XOM annuitant of long standing most of the media hype regarding oil and oil companies gets one concerned about the security of our pensions. Your articles confirm my innermost views that my employer is still looking responsibly to the future and guarding the petty cash.

  20. Looking at Figure 2 for total energy consumption, I can’t help wondering if the lost heat (assuming 40% inefficiency of any conversion process) can be the real cause of the earth’s temperature increase. As Willis points out, the energy input from solar is fairly constant therefore earth’s temperature increase must be due to another source. Does the linear increase in energy consumption correlates to the earth’s temperature increase?

      • Great to hear it.
        “Armageddon Mike” Pompeo is a loose cannon. He has at least an excuse, he is en-Raptured. No kidding, see his speech at one of those churches.

        What ever happened to separation of church and State?

  21. “After a lot of babbling about “skyrocketing” renewables”

    I always like the phrase “beginning to skyrocket”.

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