Douglas,
Your earlier posts about oilfield maintenance hold true but the view on how much spend is necessary is still subjective. No argument that it takes effort to maintain base case production but why spend extra dollars on exploration or infield develop drilling if the price stays too low.
Everything must have a rate of return on capital. The only thing saving grace is that projects currently underway will generally forge ahead if the capital is already sunk in to construction of wells, jackets and subsea schemes.
Another factor is risk v. reward. ie. deepwater has the high potential for finding elephants in unexplored regions, and the long term contracts currently in force mean that the oil companies are pretty well committed to using the rigs under contract.
I'm still long on this sector but short term I'm concerned about the price. 3 reasons: Supply, Demand and Supply!!!
Don't underestimate how much Russian oil production is shut-in and whether they intend to keep to their previous agreements.
An article from Reuters
<< ANALYSIS-Russian oil export policy in confusion
By Sebastine Alison
MOSCOW, Aug 28 (Reuters) - Russian policy on oil exports, one of the crisis-ridden economy's key hard currency
earners, appears mired in as much confusion as the financial sector or the government itself at the end of a week
of turmoil.
The market expects Russia to try and raise exports in an effort to squeeze a few extra dollars out of the sector,
even though such a move would have a adverse impact on an already weak global market.
Asked on Friday if this was the policy, a spokesman for the Ministry of Fuel and Energy revealed the depth of the
confusion.
"We don't have any information. I think that sort of information will not be available any time soon," he said. "With
movements on the stock market, and price movements, I don't think this information will be widely circulated."
But he said individual companies would not have any more concrete news because "oil exports are regulated at the
level of the state" - even though the state had not, apparently, passed its views to the relevant ministry.
A spokesman for pipeline operator Transneft, which carries all crude to export terminals or directly abroad, said
he was not able to comment on whether companies were booking more space in the system.
A government commission on access to oil export pipelines and terminals was scheduled to meet later on Friday
to discuss the September export programme.
Some Russian companies have had access to export pipelines restricted because of non-payment of taxes. This
policy was expected to be discussed and possibly reviewed at the meeting in the light of the current political and
financial crisis.
In theory, Russia committed itself to cutting its exports of both crude and products from July 1 by a total
100,000 barrels per day as part of a concerted international bid to boost sagging prices.
In practice, Russian leaders are already talking about abandoning this.
"I think we have a real chance to increase oil exports," chief debt negotiator Anatoly Chubais said last week on
Reuters Television in a question-and-answer session on the consequences of the de facto devaluation of the
rouble.
This move, announced last week, was widely seen as beneficial to oil exporters as they stood to receive more
roubles for their export dollars.
But the rouble's value is now virtually impossible to determine, with currency exchanges closed and the central
bank still posting an "official" rate which appears to be nowhere near the currency's true value.
Chubais acknowledged that exporters would come up against technical limits, as the Transneft pipeline system
does not have endless spare capacity.
But a Transneft spokesman told Reuters earlier this month that Transneft had "ample" room to boost exports,
through the Latvian port of Ventspils and through the Druzhba pipeline to central Europe.
Analysts are sceptical. Stephen O'Sullivan, co-head of research at United Financial Group in Moscow said on Friday
that while it was "logical" for Russia to push more oil out, he doubted there was much chance of doing so.
Only the Druzhba line offered much spare capacity, he said, but since that led to countries whose economies are
hard hit by the very crisis which Russia is trying to drag itself out of, demand is not likely to be great.
With President Boris Yeltsin's future the subject of endless rumour and speculation, analysts say the
fundamentals of the market, and in particular the need to keep exports steady, will not change should he leave
office suddenly. >>
There's still a supply problem IMO.
Paul.
|
