Chevron, Maersk, Transocean, BOEMRE

Jim Brown
 
Printer Friendly Version

It was a heavy news day for the energy sector with Chevron giving the first major guidance presentation for the quarter and crude prices dropping -$4.

Chevron (CVX) announced it expected higher earnings in from Q1 thanks to the higher oil prices. They received an average of $95 per barrel in Q1 compared to $85 in Q4 and $79 in Q1 of 2010. It was a good thing for Chevron that prices were higher because production declined significantly.

Global production declined from 2.79 million barrels of oil equivalent per day in Q4 to 2.75 mboepd in Q1. In the USA production declined from 734,000 bpd to 686,000. Chevron said this reflected small declines across multiple assets.

Chevron's CEO said last week they expected to raise global production by 500,000 bpd over the next 5-7 years thanks to several high profile projects coming online. It could not come at a better time for Chevron.

They said profits would also be higher thanks to wider refining margins despite the higher cost of oil. That is a rare event.

Chevron also said it had sold Shell an 8% participating interest in the Wheatstone and Lago natural gas fields operated by Chevron in Western Australia. Shell will also take a 6.4% stake in the associated $21 billion LNG export plant currently being built.

This will leave Chevron a 73.6% interest in Wheatstone with Apache at 13% and Kuwait Petroleum at 7%. The Wheatstone LNG plant will have two complete trains and is expected to be completed in 2016. This is in addition to the even larger 40 TCF Gorgon project in the same area with three complete trains. That project is expected to be over $20 billion.

A few miles away from Australia, Transocean announced it had drilled the deepest water depth well on record at 10,194 feet. This well was drilled off the coast of India and topped the prior record held by the Discoverer Deep Seas at 10,011 while working for Chevron.

The rig working in India was the Dhirubhai Deepwater KG2, named after the founder of India's Reliance energy. This is a new build rig put in service last year on a five-year contract for Reliance.

The deepest offshore well was drilled in the Gulf of Mexico at 35,050 feet in 4,130 feet of water by Transocean's Horizon rig only eight months before it exploded and sank.

These number are only going to increase as oil becomes harder to find. The newbuild ships currently on order are all being built from even greater depths.

Danish shipping group A.P. Moller-Maersk announced last week they had ordered two deepwater drillships from Samsun Heavy Industries for a total of $1.3 billion. The company said it expected the ships to pay for themselves in 10-12 years and have a lifetime of 35 years. They will be delivered in 2013.

Maersk said these were not contracted and were being built on speculation. He expects the eventual contract rates to be well over the current $435,000 per day of similar rigs. Maersk said the company had an option to order two additional rigs. They currently have three deepwater semi-submersible rigs in operation.

The Maersk Drilling CEO said an increasing amount of global oil and gas production will come from deepwater and will expand in places like Brazil, West Africa and the Gulf of Mexico. "The time of easy oil is past and now oil has to be found in deep water."

Chevron said it wanted to proceed with its $14 billion drilling and development program in the Gulf of Mexico but could not spend the money until it received drilling permits. Chevron said it had drilling rigs on standby but no permits were forthcoming. Chevron said if it could not be assured of permits soon they were going to reallocate the money and resources to some other part of the globe. They received one permit on March 24th but the rest remain in limbo.

Chevron said they needed their business partner to work with them and not against them. The Chevron VP was referring to the Federal government. Chevron is one of the largest leaseholders in the Gulf with six major producing fields, eight projects in development and 45 prospects.

Only nine permits have been approved since the Horizon disaster and only one of those was for a new well. The rest were to continue drilling on existing wells. Chevron currently has 16 permit requests pending before regulators.

You would think with the election cycle in full bloom and politicians under the microscope on raising money to offset rising debt levels and with $4 gasoline they would want to approve as many permits as possible. That would become a political platform they could use to claim they put the Gulf back to work, increased oil production and lowered the price of gasoline. Obviously that message has not yet gotten through to the Bureau of Ocean Energy Management, Regulation and Enforcement.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Picks Newsletter

See a list of our closed plays from 2010 here: Closed Positions

The OilSlick Newsletter is based on the expectations for global oil production of light sweet crude to peak and begin to decline in the 2012-2014 timeframe. I am calling this "Peak Sweet™" instead of Peak Oil. This is the point where global production of conventional light sweet crude supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Sweet™ countdown clock is ticking and time is growing short. Peak Oil will arrive shortly thereafter. Are you prepared?

Archives:200920102011201220132014201520162017