Oil majors dumping capital expenditures...
The large deficits being run by the US shale oil and gas industry are starting to be reported in the financial press. Last week the Wall Street Journal ran a story that large foreign investments in US shale oil and gas leases are drying up rapidly. In 2013, foreign companies spent only $3.4 billion on stakes in US shale formations which was less than half 2012 investments and a tenth of what they spent in 2011.Yeah... "the smarter thing."
The reason for this decline is that while some wells may be profitable, overall drilling and producing shale oil and gas is simply not. In 2012, 80 big energy companies in the US spent a combined $50.6 billion more than they brought in from energy operations. This was twice as high as in 2011 and four times as high as 2010. For 2013, the deficit is on track to reach roughly $25 billion.
With losses like these it is no wonder that foreign investors are bailing and staying out of the US shale market. Exxon says it has lost in shirt in shale gas, Shell has written down the value of its US shale properties by $2 billion, and BHP has written down its US properties by $2.8 billion.
In the long term, given the severe declines in shale oil productivity, the limited prospects for major new basins, and the plateau in US capacity starting in 2016, improved access to markets and so forth, domestic US oil prices are bound to make a strong recovery starting in 2016. This and the maturity of major fields across the world, the high cost of deep offshore and Arctic production, and the continued violent turmoil in many oil producing are bound to keep oil prices at historically high levels for decades to come.
Q. How vulnerable is world oil supply to a drop in price to $60 or $70, which some economists are predicting?Dip to $60. Say goodbye to the tight oil "revolution" and production quotas. Spike to $140? Say goodbye to demand growth. ... Either way, the industry is f'd and the economy in great peril.
A. The prospect of a severe oil price drop can only happen as the outcome of another economic collapse. On the other hand, an upward spike in oil prices is far more credible given the military tensions across the world that could disrupt oil supplies and the limited elasticity in supplies. Dysfunctional governments and failed states are now a pervasive syndrome across the world. There is little evidence that the collective global leadership is able to contain or to stabilize these many crises.
My base oil price forecast in 2012 dollars still ranges between $105 and $120/barrel Brent with a volatility floor of $ 95/barrel and more probable upward spiking to $140/barrel within 2016/2017.