Here is a fascinating post from an oil industry insider. It concerns his identification of the death of the Big Oil style energy companies. Think BP, Chevron, Total, and the like. He thinks Exxon-Mobile might survive but based on what I saw of them when I worked in the industry I very much doubt their ability to pivot around this coming change, at least in Australia.
To put it simply, the fracking revolution is much more revolutionary than anyone ever thought. There is what’s known as long-flow fracking which is a new and unpublicized technique.
“Fracking” plays (Oil Speak Note: Play = producing oil well) are normally for four years, with most of the oil in the first two years. They cost $10 to $15 million. They are profitable at $50 a barrel for a new play and already fracked wells cover their costs at half that price. The “new revolution” technique the oil service firm mentioned doubles those times to four years of high flow with a further four years of declining flow. Depending on whatever drilling costs are involved, this effectively earns them profit at a price as low as 1/2 of the per barrel cost of previously fracked wells over the new well’s longer productive lifetime.
A Big Oil drilling play in the deep ocean, arctic, or politically unstable/corrupt 3rd World nation (This now includes Putin’s Russia) runs between $1 and $5 billion because of all the infrastructure Big Oil has to build to extract and move the large quantities of oil from howling wilderness at the edge of civilization. They run 7 to 15 years.
The disinvestment that this Saudi-caused oil price crash is bringing on will see declines by corruption of existing big-oil-type production in various national oil companies, followed by a massive market share shift to fracking when the reduced-by-disinvestment Big Oil production curves start bumping reduced oil supply into increased oil demand.
Well flow-life is the critical feature of oil investment, together with start-up cost and the political and natural environment in which you are dealing. So a technology that will double well-flow in this regard coupled with the low start-up costs and the fact that it is based in Texas is beyond huge.
It will change everything. The USA will quickly become an energy exporter. Which means its entire geopolitical outlook will change. Expect it to return to pre-1940s isolationism. Now if we combine this with a successful Trump election you will see an enormous change sweep the industry. Big Oil will not be able to compete and they won’t be able to pivot. Not only because they are behemoths but because they don’t have the technology.
The very best frackers are so ‘geology analytic’ and ‘specialized equipment design heavy’ that they seldom buy drilling equipment without an absolute guarantee of a series of non-standard equipment specs geared to the site the equipment is to drill.
This is so proprietary nobody bothers patenting it to keep the lawyers and government regulators from slowing things down.
Most of the real wealth in the small fracking firms is the secret formulas in the heads of the head geologists and the knowledge/people network of the CEO’s smart phone (the replacement for the rolodex).
This is driving the big corporate oil suits, the Leftist environmentalist crowd and particularly their tools in the EPA mad.
In other words, they can’t be copied because nobody can steal the technology. It’s all in their heads. They are purposely not patenting it and they are running their wells at a very small percentage of their potential capacity to keep a lid on things. So how did the writer find out? By talking to the suppliers. All oil spending has gone through the floor but this supplier was selling a lot of copper tubing for frack-log drilling.
This also has implications for the environmental industry, also known as Big Green. They have built up a massive business of consulting by going after any development and tying it up in excessive regulations among other things. But this new fracking is located in Texas on private land. There are no pipeline or other bogeymen. With the collapse of Big Oil we will most likely see the collapse of Big Green. And Big Oil companies that are tied to Big Green, (Shell is a glaring example of this), will only go down faster.
Not to put it too bluntly, the Saudis are fucked. They are desperate to diversify their economy with in this case a GE factory that will provide 2000 jobs. The article is from yesterday. As anyone who has worked with the Saudis knows, getting them to actually work is a tremendous joke. The Saudis originally collapsed the price of oil to drive out the US fracking but with new fracking techniques doubling potential well life and production it seems that the frackers can survive with oil around $10 a barrel. The Saudis need oil at $100 a barrel just to pay for their lifestyle.
Every third-world shithole that is oil dependent is fucked. Think your Nigerias and the like. The expense of getting oil out of those countries due to their tribal kleptocratic regimes with make them instantly nonviable, all at the same time. Think multiple Venezuelas happening literally overnight.
Expect big changes. Everywhere. This changes everything and it is huge. The renewable energy industry will be wiped from the face of the earth. If I was a betting man I would short all renewable and Big Oil stocks. Particularly the European Big Oil stocks. Those monsters are going to fall over a cliff Kodak style.