Author Topic: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected  (Read 1272 times)

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Offline thackney

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Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« on: April 02, 2019, 02:49:01 pm »
Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
https://www.forbes.com/sites/rrapier/2019/04/01/saudi-aramcos-breakeven-oil-price-is-higher-than-expected

...However, I found the most significant item in the prospectus to be that Saudi Aramco struggled to break even in 2016 when Brent crude averaged about $45 per barrel. Net income in 2016 was only $13 billion, and free cash flow a mere $2 billion. Contrast that with the $111 billion in income and $86 billion in free cash flow the company made in 2018 (when Brent crude averaged $71.34/bbl), and it looks like Aramco's breakeven price is just about $40/bbl.

No wonder OPEC threw in the towel in 2016 and decided to abandon its price war with U.S. shale. OPEC's largest member saw its income dry up and was on the verge of posting a loss if oil prices didn't turn around. I once characterized OPEC's decision to declare war on U.S. shale oil producers as a trillion dollar miscalculation, and at least now we can see that it likely cost Saudi Aramco alone several hundred billion dollars.

The implications of this news are that we will likely never again see an extended period of time with world oil prices below $45, because OPEC will have to take action at that point to prop up prices as the cartel did in 2016. Otherwise, they will quickly find themselves in deep financial trouble, unable to balance government budgets....

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Offline thackney

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #1 on: April 02, 2019, 02:52:52 pm »
The biggest Saudi oil field is fading faster than thought
https://www.houstonchronicle.com/business/energy/article/The-Biggest-Saudi-Oil-Field-Is-Fading-Faster-Than-13734598.php
April 2, 2019

...When Saudi Aramco on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its mega oil fields. The company’s bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day -- well below the more than 5 million that had become conventional wisdom in the market.

"As Saudi’s largest field, a surprisingly low production capacity figure from Ghawar is the stand-out of the report," said Virendra Chauhan, head of upstream at consultant Energy Aspects Ltd. in Singapore.

The Energy Information Administration, a U.S. government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017. Aramco, in a presentation in Washington in 2004 when it tried to debunk the "peak oil" supply theories of the late U.S. oil banker Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade....
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Offline IsailedawayfromFR

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #2 on: April 02, 2019, 03:09:17 pm »
Many facets of the low income and cash flow during 2016 remain unknown.

I find it extremely doubtful that the low amounts of both are due to operating costs of their oil fields and transportation.

Must be tremendous non-operating costs included that depress the figures, costs which are atypical for any private company to absorb.

So it is likely comparing apples and oranges with Total or Shell, although there should be some recognition all is not well in the kingdom.
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Offline kidd

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #3 on: April 02, 2019, 03:50:36 pm »
This, of course, implies that US shale oil has a break even point that is less that $45/barrel.

But that doesn't make sense. Isn't it cheaper to drill a single vertical well and then pump the oil from a large underground reservoir than to perform directed horizontal drilling/fracking

Offline thackney

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #4 on: April 02, 2019, 04:47:58 pm »
This, of course, implies that US shale oil has a break even point that is less that $45/barrel.

But that doesn't make sense. Isn't it cheaper to drill a single vertical well and then pump the oil from a large underground reservoir than to perform directed horizontal drilling/fracking

Ghawar is now in tertiary oil recovery.  It is not a simple straw anymore.

https://en.wikipedia.org/wiki/Enhanced_oil_recovery

also:

Healthy Breakeven Points Keep Permian Development Flowing, Despite Low Oil Prices
https://www.oilandgas360.com/healthy-breakeven-points-keep-permian-development-flowing-despite-low-oil-prices/
January 7, 2019
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Offline Joe Wooten

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #5 on: April 04, 2019, 01:13:52 am »
The biggest Saudi oil field is fading faster than thought
https://www.houstonchronicle.com/business/energy/article/The-Biggest-Saudi-Oil-Field-Is-Fading-Faster-Than-13734598.php
April 2, 2019

...When Saudi Aramco on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its mega oil fields. The company’s bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day -- well below the more than 5 million that had become conventional wisdom in the market.

"As Saudi’s largest field, a surprisingly low production capacity figure from Ghawar is the stand-out of the report," said Virendra Chauhan, head of upstream at consultant Energy Aspects Ltd. in Singapore.

The Energy Information Administration, a U.S. government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017. Aramco, in a presentation in Washington in 2004 when it tried to debunk the "peak oil" supply theories of the late U.S. oil banker Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade....

Hmmmmmm....I wonder if the Saudis are interested in hiring an American horizontal drilling/fracking outfit to help their aging fields??

Offline IsailedawayfromFR

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #6 on: April 04, 2019, 03:43:44 am »
Hmmmmmm....I wonder if the Saudis are interested in hiring an American horizontal drilling/fracking outfit to help their aging fields??
They hire thousands of Americans to work for Saudi Aramco already and many thousands more as contractors.  It is one of the most American-run companies one will find outside of the US as over the years the Saudis were shrewd enough to maintain a semblance of Americanism within the company to be more successful.

The last couple of decades have seen a severe decline in American management in the company though, as those slots are now filled with Saudis.   Americans are more in the high-end technical expertise for the company, although there are some very smart technical people involved that are Saudis.
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Offline thackney

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #7 on: April 04, 2019, 12:01:55 pm »
They hire thousands of Americans to work for Saudi Aramco already and many thousands more as contractors.  It is one of the most American-run companies one will find outside of the US as over the years the Saudis were shrewd enough to maintain a semblance of Americanism within the company to be more successful.

The last couple of decades have seen a severe decline in American management in the company though, as those slots are now filled with Saudis.   Americans are more in the high-end technical expertise for the company, although there are some very smart technical people involved that are Saudis.

As a simple example of their emphasis on technology, for you computer nerds:

https://www.top500.org/site/48751

Saudi Aramco and partners shatter supercomputing record
https://www.saudiaramco.com/en/news-media/news/2017/saudi-aramco-and-partners-shatter-supercomputing-record
« Last Edit: April 04, 2019, 12:03:36 pm by thackney »
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Offline Smokin Joe

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #8 on: April 04, 2019, 02:13:47 pm »
This, of course, implies that US shale oil has a break even point that is less that $45/barrel.

But that doesn't make sense. Isn't it cheaper to drill a single vertical well and then pump the oil from a large underground reservoir than to perform directed horizontal drilling/fracking
It might seem that way, but many reservoirs are anisotropic in terms of porosity and permeability. It isn't the simple layer cake shown in the common graphics, The obvious advantages are that a horizontal well cuts across compartments in these reservoirs, and by cutting the compartment boundaries opens up areas of reeservoir which might not otherwise be produced. Work I am engaged in now involves identifying reservoir compartment boundaries, while we are drilling, among other things.

An early (for North Dakota, 1990s) project I worked on was in a field with an 80 acre spacing for the wells. We did re-entry laterals from some of those older wellbores and found new reservoir, even in that relatively dense drilling layout. On one well, after a year, we came back and cut a second lateral from the same wellbore (90 degrees out from the first), and identified even more new reservoir. These were only 1500 ft. laterals from the old vertical wellbore.

In practice, in the Bakken and Three Forks wells now common to the Williston Basin, there are four horizontal wells drilled per formation from the same pad on a 1280 acre spacing, with the four wells running parallel down the length of that two square mile rectangle. In terms of reservoir drainage, this has proven far superior to drilling the 16 vertical wells (each with their own surface location and production equipment), and the horizontal wells frac extent exceeds the extent of any fracs which could be conducted from the vertical wells. The vertical wells, given a 10 foot thick pay horizon would expose 160 feet of wellbore to the producing formation.
The four horizontal wells, by comparison, expose 38,000 feet of wellbore to the formation, with a smaller environmental footprint on the surface, and more centralized production facilities requiring only one access road.
Despite the higher expense of drilling individual wells, the end result is far superior to the results from trying to produce the same geological formation from vertical wellbores.
How God must weep at humans' folly! Stand fast! God knows what he is doing!
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Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.

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Offline IsailedawayfromFR

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #9 on: April 04, 2019, 08:59:08 pm »

Despite the higher expense of drilling individual wells, the end result is far superior to the results from trying to produce the same geological formation from vertical wellbores.
The Bakken has come a long way from its early vertical days, as has other places like the Austin Chalk, now being once again developed for at least the fourth time.
No punishment, in my opinion, is too great, for the man who can build his greatness upon his country's ruin~  George Washington

Offline kidd

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #10 on: April 04, 2019, 09:48:42 pm »
It might seem that way, but many reservoirs are anisotropic in terms of porosity and permeability. It isn't the simple layer cake shown in the common graphics, The obvious advantages are that a horizontal well cuts across compartments in these reservoirs, and by cutting the compartment boundaries opens up areas of reeservoir which might not otherwise be produced. Work I am engaged in now involves identifying reservoir compartment boundaries, while we are drilling, among other things.

An early (for North Dakota, 1990s) project I worked on was in a field with an 80 acre spacing for the wells. We did re-entry laterals from some of those older wellbores and found new reservoir, even in that relatively dense drilling layout. On one well, after a year, we came back and cut a second lateral from the same wellbore (90 degrees out from the first), and identified even more new reservoir. These were only 1500 ft. laterals from the old vertical wellbore.

In practice, in the Bakken and Three Forks wells now common to the Williston Basin, there are four horizontal wells drilled per formation from the same pad on a 1280 acre spacing, with the four wells running parallel down the length of that two square mile rectangle. In terms of reservoir drainage, this has proven far superior to drilling the 16 vertical wells (each with their own surface location and production equipment), and the horizontal wells frac extent exceeds the extent of any fracs which could be conducted from the vertical wells. The vertical wells, given a 10 foot thick pay horizon would expose 160 feet of wellbore to the producing formation.
The four horizontal wells, by comparison, expose 38,000 feet of wellbore to the formation, with a smaller environmental footprint on the surface, and more centralized production facilities requiring only one access road.
Despite the higher expense of drilling individual wells, the end result is far superior to the results from trying to produce the same geological formation from vertical wellbores.
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Offline Smokin Joe

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Re: Saudi Aramco's Breakeven Oil Price Is Higher Than Expected
« Reply #11 on: April 04, 2019, 11:25:38 pm »
The Bakken has come a long way from its early vertical days, as has other places like the Austin Chalk, now being once again developed for at least the fourth time.
The Bakken was never really a vertical target. It was noted on the way to somewhere else, always producing a show in the deeper basin, and, in places (up on the Nesson Anticline, one well on the Billings Nose, and a couple down in the Antelope Field) rarely produced early on.
Usually it was one of those shows people might give a shot if the Red River, Interlake, Duperow, Dawson Bay, Winnepegosis, and others didn't pan out, tested as they were plugging back.
Some of those vertical wells were plumb accidental (one I worked in 1980, for instance), where a vertical wellbore headed elsewhere (Duperow) cut some fractures in the Middle Bakken and came on, in the case I am most familiar with, like gangbusters. When you have to drill the rest of the well to the intended target underbalanced because the Bakken just won't quit, well, you make a well out of it. (IP 560,000 CFD and 70 bbls of condensate a day out of 4 ft. of perfs (done on the basis of my geological strip log, because the porosity throughout the wellbore was gas invaded). It was still going 10 years later and making enough gas to run its own Ajax.

Aside from those incidental producers, there was a flurry of activity trying to drill the shale horizontally during the mid to late 80s, which didn't generally work out so well. The shales are notorious for collapsing and other hijinks which leave tools downhole, and they just aren't the producer the Middle Bakken dolomite and clastics are (not much reservoir, unless they got out of zone and into the Middle Bakken or crossed fractures which hadn't healed with calcite and led down into the tight rock below).

That was abandoned, and the word was that few wells reached payout.
Then EOG and Lyco were sniffing around the Richland County Montana area, drilling single section spaced (640 acres) laterals in the Middle Bakken with invert mud, and getting a few hundred barrels a day, when I saw what they were looking at in a vertical well in what is now the edge of Elm Coulee Field, while working for another oil company.

That company came back and twinned the well, and drilled their first Bakken horizontal (in 2000), and in the years following, drilled another 150 or so wells in the field there before drilling a few in North Dakota. There was a lot of experimenting going on in the early days, and that was a lot of fun, but we ended up drilling with salt water, made hole faster, and after the frac, 1000 BOPD wells were not uncommon on a 640 spacing (single lateral).

They were bought out, but I was kept on as a wellsite consultant by the company who bought them out, emphasis shifted toNorth Dakota's side of the WIlliston Basin, and the company who subsequently bought them out kept me on, too, until the downturn in 2014, where the major decided they wanted to deal with larger consulting outfits and let those of us who pioneered the play go.

By then, (now 2014), the play was in full swing, well documented, and moving past exploring to development.

 
How God must weep at humans' folly! Stand fast! God knows what he is doing!
Seventeen Techniques for Truth Suppression

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.

C S Lewis