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14 Posts authored by: sksingh

Record levels of oil and gas properties changed hands last year with the industry's bad times seemingly behind it and oil prices on the upswing. All that deal activity - mostly between private and public companies - may lead to some mid-sized publicly traded companies being in play in 2017 as larger companies look to boost their development prospects and free cash flows.

Gabriele Sorbara, who follows the oil and gas exploration and production industry at Williams Capital Group LP, thinks the most likely targets are the ones situated in the core areas of the Permian, Anadarko and Appalachian Basins -- and to a lesser extent in the Eagle Ford, Bakken and Niobrara plays. In his coverage area, he names five companies as the best takeout targets given their running room across key resource areas -- and their cheap stock prices.

The first is Energen Corp. (NYSE:EGN), which operates in the heart of West Texas' and New Mexico's Permian Basin. The company is expected to expand its production by 20% per year over the next three years but inexplicably trades below its peers. It also has $1.5 billion in liquidity with which to execute, which could be boosted if it sheds its Central Basin assets for what Sorbara thinks could fetch $600 million.

His second pick is Laredo Petroleum Inc. (NYSE:LPI), which also has oil and gas properties in the Permian. There's a bit of an overhang on its stock as it also owns infrastructure assets, including 49% of the Medallion Pipeline in the Midland Basin, which could be spun off into a master limited partnership or sold. Private equity firm Warburg Pincus also holds about a third of its shares.

The third possibility is Newfield Exploration NFX +1.69% Co., which owns properties in the Anadarko and Arkoma basins of Oklahoma as well as the Williston Basin of North Dakota, the Uinta Basin of Utah and off the coast of China. The company has ample liquidity of $2.3 billion, which could be supplemented with the sale of noncore assets (it sold all of its Texas assets this past summer for $390 million). But the stock trades at a 6Permian Basin players given its stacked-pay resource potential in the Anadarko Basin.

The analyst's fourth pick is PDC Energy Inc. (NASDAQ:PDCE), which operates mainly in the Permian's Delaware Basin, where it recently expanded via the acquisition of two oil companies from Kimmeridge Energy Management Co. for $1.5 billion. It also has strong assets in the Wattenberg Niobrara and the Utica Shale, which could be sold to generate funds to plug in elsewhere. Sorbara thinks the stock should trade higher than its Niobrara peers given its Delaware properties. Newfield Exploration NFX +1.69%

A fifth prospect is SM Energy Inc. (NYSE:SM), which has properties in the high growth, high-margin Midland Basin, where it has expanded over the last year with $2.58 billion worth of purchases from Riverstone Holdings LLC-backed Rock Oil Holdings LLC and EnCap Investments LP-backed QStar LLC. Sorbara says the company deserves a higher valuation, especially now that it's agreed to jettison its Eagle Ford assets to KKR & Co. LP (NYSE:KKR)-backed Venado Oil & Gas LLC for $800 million. It sold its Williston Basin assets last month to Oasis Petroleum Inc. (NYSE:OAS) for $765.8 million.



2017- A quiet year for oil?

Posted by sksingh Jan 6, 2017

After several years of erratic fluctuations in the oil prices, 2017 could provide investors with the mercy of a relatively quiet year for oil prices. There are plenty of reasons to be optimistic about prices going into the start of the year. The OPEC production cuts have shored up sentiment and set the stage for restrained production in the first half which could draw down oil stocks considerably.


However, it’s not certain that oil prices will continue to rocket higher either. For one thing, many analysts are skeptical about OPEC commitment to cuts, while others are doubtful regarding the rebounding rig count used for unconventional U.S. production.


Place these factors together and 2017 could see oil struggle to make any serious gains while simultaneously being resilient to any serious losses. In particular, money managers as a group are very bullish on oil. Bullish investments from money managers on WTI prices going into January 2017 are triple what they were going into January 2016. Bullish sentiment is higher at this particular stage than any time since the oil price crash began almost three years ago.


Oil market sentiment in general appears to be more bullish now than it has been in years. That optimism is having different effects on different parts of the supply chain though. The OPEC nations have already started to see pressure coming off of them thanks to the pick-up in prices.


Middle Eastern oil companies reduced their borrowing in 2016 by 26% because of the increased prices in the latter part of the year. Due to the increase in prices, funding the exploration and production programs could be done without the requirement for additional borrowing. While industry was able to cut borrowing needs, many of the Middle Eastern nations themselves increased borrowing because of the holes created in their budget by falling oil prices.


In 2017, it’s likely that OPEC nations won’t need to borrow as much, and that borrowing by industry will continue to remain restrained. Although, as financial pressures ease, it may open the door to slow growth in production which in turn could limit the upside money managers are expecting in prices.


Limited volatility is expected next year because prices will be insulated from geopolitical risks. In the recent years, when many producers were pumping barrels all out, any supply disruption due to things like Canadian wildfires or Nigerian terrorism raised the risk of a short-term shortage often leading to price spikes.


With OPEC cuts largely baked into the price, it is unlikely that 2017 will see any more major supply cuts. Venezuela, would probably be an exception and is most likely to see overall production decline, but those declines are going to be driven by a lack of investment and they will probably be gradual.


This year, OPEC is aiming to operate below productive capacity, and therefore, there should be plenty of slack available in the event of unexpected production issues. The typical spikes and dips in pricing from over or under production should be limited as a result this time.


On a broader note, Wall Street analysts seem to agree with that view as well. Analysts are expecting crude prices to average $58 per barrel in the fourth quarter according to a Bloomberg survey. Dispersion among analyst forecasts is lower than usual as well.


Money managers and analysts have different views going into 2017, but neither group is forecasting a return to the oil price lows seen early last year and throughout much of 2015. Given that, investors should be breathing a sigh of relief and be ready to welcome a quiet year for black gold.



29 companies from more than a dozen countries have been named by Iran as being allowed to bid for oil and gas projects using the new, less restrictive Iran Petroleum Contract (IPC) model, the oil ministry news website SHANA reported on Monday.

The list of pre-qualified firms included Shell, France's Total, Italy's Eni, Malaysia's Petronas and Russia's Gazprom and Lukoil, as well as companies from China, Austria, Japan and other countries.

The new IPC has been devised by Iran as part of an effort to sweeten the terms it offers on oil development deals, attract foreign investors and boost production after years of sanctions.

However, the list did not include oil major BP. It was reported that BP had opted out of the bidding because of concerns over possible renewed U.S.-Iran tensions after President-elect Donald Trump takes office on Jan. 20.

Trump has said he will scrap the deal between Iran and world powers that imposed curbs on Tehran's nuclear projects and lifted sanctions on the Iranian economy last January.

The first oil output contract under the IPC model was signed by the State-run National Iranian Oil Company (NIOC) in October with an Iranian firm identified by the United States as part of a conglomerate controlled by Iran's Supreme Leader Ali Khamenei.

The IPC model has been delayed several times due to opposition from hardline rivals of President Hassan Rouhani. The recent happenings end a buy-back system dating back more than 20 years under which Iran did not allow foreign firms to book reserves or take equity stakes in Iranian companies.

The new IPC has more flexible terms, and oil price fluctuations and investment risks shall be taken into account, a senior Iranian oil official told Reuters in November.

Oil majors have said they would only go back to Iran if it makes major changes to the buy-back contracts, which companies such as France's Total or Italy's Eni said made them no money or even incurred losses.

Source: Reuters



As 2016 draws to an end, we are closing out one of the worst years for the oil and gas industry in decades, even though the oil prices are rebounding. In 2016, the U.S. oil and gas industry defaulted on $39 billion in high-yield energy debt, more than twice as much as the $15 billion in defaulted debt in 2015, according to Fitch.


Ever since the oil prices starting falling in 2014, many oil and gas companies were able to weather the storm at the end of the year and for much of 2015, only to run out of room this year. According to Fitch, one in three U.S. oil and gas exploration companies defaulted on high-yield bonds in 2016. Looking at the scenario from a broader perspective of energy companies rather than just oil and gas, one in five companies defaulted on high-yield debt. That stands in stark contrast to the less than 1 percent of energy companies that defaulted in 2014.


However, it isn’t applicable only to the U.S. companies.


Fitch points to Venezuela’s state-owned PDVSA, which has $13 billion in high-yield debt that is probably most in danger of default. PDVSA has seen production drop and has been raided by the Venezuelan government. With both the sovereign and the company essentially broke, it could be a matter of time before a default arrives. PDVSA succeeded a few months ago in convincing creditors to extend maturity terms on some of its bonds, buying it a bit of breathing room.


A few other noteworthy bonds that are in shaky territory include Brazil’s Odebrecht Offshore Drilling, which has $3 billion in outstanding debt; California Resources Corp., which has $2.8 billion; and FTS International, a well completion company based in Texas, which has $800 million in high-yield debt.


As it turns out, 2016 was a horrific year for the high-yield sector. However, Fitch says that 2017 will be much better. Rising oil prices, are bringing in new optimism and will keep most companies out of danger. Fitch projects just a 3 percent default rate.


The rebound across the oil and gas industry is still in its infancy, but there are positive signs that the sector is on the mend. With just a few days left in December, only two upstream North American energy companies have declared bankruptcy, the lowest number since the beginning of 2016. According to Haynes & Boone, a Dallas-based law firm, more than 220 upstream and oilfield service companies have declared bankruptcy since the start of the downturn in 2014; but two-thirds of those came this year.


“The worst is over with oil prices moving up. Prospects are a lot better than they were a year ago,” Eric Rosenthal, an analyst at Fitch Ratings, said in a report. “The recovery of oil prices probably saved a few of them.”




Saudi Arabia is planning to sell almost half of Saudi Arabian Oil, the world’s largest oil company, al Eqtisadiah reported.
A stake amounting to 49% will be sold within a decade, according to the Riyadh-based newspaper, which cites an unidentified senior government official. Deputy Crown Prince Mohammed bin Salman had given a statement in April that an initial public offering has been planned for the year 2018, or even a year earlier, with the country planning to sell less than 5%.

This move has resulted from the fact that Saudi Arabia has been under pressure due to lower crude prices. The share sale has been planned as a part of an effort to generate revenue and reform its economy. The government hopes to raise about $100 billion from the IPO of its flagship asset. Saudi Arabia’s Public Investment Fund will use the proceeds, and eventually control more than $2 trillion and help wean the kingdom off oil.
“Going from 5 to 49% is a huge jump but if you do it gradually over 10 years and in small chunks it is possible,” said John Sfakianakis, head of economics research at the Gulf Research Center in Riyadh. By doing so, the Saudis are planning their sources of revenue beyond ten years, in order to diversify their non-oil income.


The Saudi government relies heavily on oil sales for revenue, and its finances have taken a blow since prices started tumbling in 2014. Total projected revenue this year, at 528 billion riyals ($141 billion), is less than half what it collected in 2013, when oil was trading above $100 and made up 90% of revenue. Brent crude, the global benchmark, closed Friday at $55.16 a barrel.
Taking a company as large as 
Aramco to the market may pose challenges for Saudi Arabia. Selling any part of Saudi Aramco to the public will require “full audits and a large amount of transparency,” Paul Sullivan, a professor of security studies at Georgetown University in Washington, said by email on Saturday.


Source: Business Standard

Barack Obama, in a new and surprising move, has permanently banned new oil and gas drilling in most US-owned waters in the Arctic and Atlantic oceans, a last-ditch effort to lock in environmental protections before he hands over to Donald Trump.


The use of a 1953 law was made that allows presidents to block the sale of new offshore drilling and mining rights and makes it difficult for their successors to reverse the decision.


However, Obama’s ban – affecting federal waters off Alaska in the Chukchi Sea and most of the Beaufort Sea and in the Atlantic from New England to the Chesapeake Bay – is extraordinary in scale and could be challenged by Trump in court.


Trump has expressed his sentiment to unleash the country’s untapped energy reserves and exploit fossil fuels. He has previously questioned the science of climate change, threatened to tear up the Paris climate agreement and appointed climate-change deniers in his cabinet. All of these happenings, led to a scramble from environmentalists calling on Obama to impose whatever regulations and executive orders he can to protect his climate legacy.


Tuesday’s move came in a joint announcement by Obama and the Canadian prime minister, Justin Trudeau, who also put a suspension on new oil and gas leasing in its Arctic waters, subject to periodic review.


Obama, currently on holiday in Hawaii and with only a month left in office, said in a statement that these joint actions are required to protect a sensitive and unique ecosystem that is unlike any other region of the face of the Earth. He voiced his concern regarding the significant chances of oil spills in these regions despite high safety standards, which may lead to disastrous consequences. “By contrast, it would take decades to fully develop the production infrastructure necessary for any large-scale oil and gas leasing production in the region – at a time when we need to continue to move decisively away from fossil fuels”, Obama said.


A Department of Interior analysis shows that, at current oil prices, significant production in the Arctic will not occur. “That’s why looking forward, we must continue to focus on economic empowerment for Arctic communities beyond this one sector,” the statement said. 


The announcement was welcomed by campaigners as the decision will help protect existing lucrative coastal tourism and fishing businesses from offshore drilling, which promises smaller, short-lived returns and threatens coastal livelihoods. Few energy companies have expressed a wish to drill any time soon off the coasts thanks to abundant cheap shale oil in North Dakota and Texas. Exploratory drilling in the Arctic is costly and risky.


But with Trump in the White House, the obscure law could face a challenge. Dan Naatz of the Independent Petroleum Association of America told the Associated Press: “Instead of building on our nation’s position as a global energy leader, today’s unilateral mandate could put America back on a path of energy dependence for decades to come.”


Canada will designate all Arctic Canadian waters as indefinitely off limits to future offshore Arctic oil and gas licensing, to be reviewed every five years through a climate and marine science-based life-cycle assessment.

Source: The Guardian



Oil prices, last week, ended largely where they started with the strong gains from the non-OPEC deal having worn off as the week progressed. The credibility in the collective cuts from OPEC was duly strengthened with the non-OPEC deal, with an expected 1.8 million barrels per day slated to be pulled off the market in early 2017. However, on Wednesday, the U.S. Federal Reserve poured cold water on the party with its interest rate hike – the strong dollar did a number on commodity prices. Markets regained faith in OPEC’s compliance to the deal, as oil prices closed the week in the green.


Libya and Nigeria set to boost oil exports.  In order to bring disrupted oil production back onto the market, a key oil export terminal as well as a pipeline in Libya are about to come back online,. Production in Libya has been doubled from 300,000 to 600,000 bpd since September. More capacity is speculated to come online as the political situation improves. Separately, the Nigerian government signed a deal with ExxonMobil, Royal Dutch Shell, Eni and Chevron to resolve a dispute over back payments of $5 billion on JVs. The deal could pave the way to more investment and lead to a resurgence in Nigeria’s output, which is down to 1.8 mb/d from a peak last year of 2.2 mb/d. If the two OPEC countries, Libya and Nigeria, restore capacity, it could threaten the efficacy of the OPEC deal.


IEA: Oil demand in 2017 to slow. The IEA has released a statement that global oil demand growth will slow to just 1.3 mb/d next year, down from 1.4 mb/d this year and 1.9 mb/d in 2015. The growth rate will be the smallest since 2014 and as a result, it would pose as a threat to a market on the mend. Other analysts put the 2017 growth rate much lower – Citigroup thinks demand will only expand by an unimpressive 1.1 mb/d.


Goldman Sachs increases oil price forecast. A revised oil price forecast for 2017 was issued by Goldman Sachs, to reflect the effects of the non-OPEC agreement and greater confidence in the compliance of OPEC members to their historic deal. The investment banks expect WTI to average $57.50 in the second quarter of next year, up from its previous estimate of $55. Brent will average $59 instead of $56.50. The assumption being made here is an 84 percent compliance rate from OPEC, which will lead to cuts of 1.6 mb/d from the cartel instead of the announced 1.8 mb/d.


Pioneer expects $70 oil. Pioneer Natural Resources is a lot more optimistic with it’s forecast as compared to Goldman Sachs.. The Texas shale driller sees WTI rising to $70 per barrel by the end of 2017 as the world quickly draws down on storage levels. A statement was made by the COO to Bloomberg that his company has hedged 85 percent of its production through 2017, but has declined to hedge much for 2018 as it plans on profiting from much higher prices.


WTI faces pressure from inventories at Cushing. While U.S. oil inventories are slowly coming down, they remain near record highs at the key oil hub of Cushing, OK. Part of that is a seasonal phenomenon as Gulf Coast refiners put extra product in storage in Cushing for tax reasons. But also refiners process less in winter months. Another reasons is that production is booming in Texas, keeping pressure on storage tanks. The inventories are pushing the market into a deeper contango than what has been seen in recent weeks, and also putting pressure on the WTI-Brent differential.


Statoil to sell off Canadian oil sands. Statoil announced its decision to sell off its oil sands assets to Athabasca Oil Corp. in a deal that could be worth up to $832 million. After having spent nearly a decade in Alberta’s oil sands, it will exit the play with a loss of at least $500 million. Apparently, this deal is in accordance with Statoil’s strategy of portfolio optimization to enhance financial flexibility and focus capital on core activities globally.


Chesapeake Energy’s “Prop-a-geddon.” Chesapeake Energy is conducting the largest frac job in the history of the Haynesville shale in Louisiana, a process the company is calling “prop-a-geddon.” The natural gas well the company is drilling is an experiment in economies of scale, drilling a well that is 2 miles deep and runs 2 miles horizontally, using 51 million pounds of sand. The monster frac job, Chesapeake believes, is a world record. Shale companies have been figuring out ways to use more frac sand, or drill longer laterals, to improve well economics, but Chesapeake is arguably pushing the bounds further than anyone. Chesapeake hopes it can cut costs by 75 percent compared to the average well. The WSJ reports that the experiment is integral to the turnaround of a deeply indebted company.


Trump selects Rep. Ryan Zinke (R-MT) for Interior. The Republican Congressman was chosen to lead the Interior Department, a former Navy SEAL. He is a supporter of oil and gas drilling, as expected, but he has also shown a bit of an independent streak, bucking his party on matters of public lands. While many Republicans want to privatize public lands to accelerate industry development, Zinke has fought to keep public lands public, offering a small sliver of hope for environmentalists fearing an onslaught from the Trump administration. Still, Zinke will likely oversee greater drilling opportunities on public lands.



Over the next decade, mobile, the Internet of Things, machine learning, robotics, and blockchain technologies will change a great deal about how the oil and gas industry works.

Five technologies will change the oil and gas industry: mobile will speed oilfield transactions, increase efficiency, and improve safety by removing people from harm’s way; the Internet of Things (IoT) will reduce the cost of repairs; machine learning will provide ever more optimal solutions to field challenges; robotics will upend the question of who does the work, and blockchain will make contracting faster and smoother than ever before.

Adopting these technologies will be a challenge for many in our industry, requiring a change in mind-set. Engineers tend to focus less on investing for the future than on fixing what’s broken now, as do companies trying to maximize their return on investment. But investments in these transformative technologies now will mean less to fix in the future, and more time to innovate, operate, and develop resources as fully as possible—which is what we’re all trying to do, correct?

Let’s look at how a repair for a typical production well might play out just a few years from now using mobile, the IoT, machine learning, robotics, and blockchain.

The case of AB-123’s leaky gasket:

Something is up with well AB-123. A machine learning program called WellHealth, which monitors thousands of wells, has looked at 27 similar incidents and suspects a leaking gasket. WellHealth sends a text to the duty engineer asking permission to dispatch a field technician to inspect AB-123.

The engineer sends a text back, asks about the cost, and when the next scheduled visit to the well will be. WellHealth looks up the ten most recent field visits and reports that an inspection visit will probably cost $150 and that the next scheduled visit will be in 90 days.

The engineer texts, “OK, and send me the results,” and WellHealth issues a work bid request to TheRoughneckList, an online marketplace for service requests. The bid request specifies the required certifications for a field technician, sets a minimum supplier review rating, describes the job in detail, and provides the delivery window. Thirty minutes later, WellHealth has received and considered 22 offers. It selects Hrishika, who bid $99, and included a free LIDAR survey of the well site. WellHealth sends Hrishika a smart contract which she accepts. The bot puts $99 into a blockchain-based escrow account. Hrishika receives confirmation of the deposit, hops into her truck, and drives to the site.

When she gets to the turn-off from the main road, she launches a drone from the back of her truck to fly ahead and locate the well. She does this to avoid time-wasting wrong turns and to scout washed-out roads. As it guides the truck to well AB-123, the drone begins to inspect the well with visible, infrared, ultraviolet, radio, X-ray, and acoustic sensors. Hrishika reviews the drone’s data as the truck drives itself the last 2 kilometers to the well. When she arrives, she goes straight to work. It looks as though WellHealth was right; a gasket is leaking. After taking a look to confirm, Hrishika emails a report to WellHealth and quotes a price to replace it. WellHealth confers with the engineer, who approves.

The gasket does not weigh much, so WellHealth orders a replacement gasket kit from DigitalOilfieldSupply and 35 minutes later a drone drops the package at the well site where Hrishika is waiting.

While DigitalOilfieldSupply’s drone was on the wing, Hrishika watched a YouTube video describing exactly how to replace the gasket. She read in the comments section that the valve cover is heavy and can fall on your feet if you don’t secure it before you remove the bolts.

The gasket in hand, tools in the pouch, she executes the repair in the standard 90 minutes, each step recorded and audited by the camera on her hardhat, and by the drone circling behind her.

When she has packed up all her gear, her chatbot, WorkReports, presents a work package of forms, videos, annotated photos, and inspection scans for WellHealth’s approval. After Hrishika has made a small edit, WorkReports sends the package; WellHealth reviews it; checks that AB-123’s pressure has returned to normal; releases the escrow funds; awards Hrishika a 5-star review on TheRoughneckList; updates the maintenance logs; and sends a partial billing statement to working-interest owners, per their contracts.

While elements of this story may seem a little far-fetched today, every single component we have mentioned either is available, or at an advanced stage of development.

The five technologies:

The five technologies that will change the way the industry operates—all of which played a role in the story of AB-123 and its leaky gasket—are mobile, the Internet of Things (IoT), machine learning, robotics, and blockchain.

  1. Mobile technology is familiar to us all and has already transformed thousands of processes such as calling a taxi, or accessing schematics on a job site. In ten years, our grandchildren will laugh as we try to explain what a boarding pass was, or how we went to a store to buy music, or to a bank to get cash—whatever cash was. Even physical passports may have disappeared. And, in the oilfield, mobile technology will let technicians like Hrishika bid for a project, accept the assignment, and file the work report when they have finished, no matter what time it is or where they are.

While there are no revolutionary breakthroughs expected in mobile, what is happening is a continuous march down the cost curve. As a result, the ability to provide connectivity to smaller and cheaper components, in more and more remote areas, continues to grow. We expect that by 2025 every well in the Western Hemisphere will have access to 4G cellular at a cost-competitive rate.

  1. The Internet of Things (IoT) is the network of physical objects—devices, vehicles, buildings, and others—equipped with electronics, software, sensors, and Internet connections that enable them to collect and exchange data. We already have many networked sensors in our industry for the remote monitoring and control of refineries, pipelines, pumps, and platforms. However, as the cost of devices continues to drop, we will see many more applications in well-monitoring, drones, and vehicle guidance, to name a few.

An example of the profound change occurring can be found in the registration of cellular telephone numbers. Many new cars today have hidden cell phone systems that transmit performance data, download maps, and so on. In the first quarter of 2016, more cars were registered for phone numbers in the US than were personal cell phones. A report issued by the networking company Cisco estimates that there will be 50 billion devices connected to the Internet by 2020, collecting and sending information, and receiving instructions. That is more than seven devices per living person.

  1. Machine learning is the capability of computers to understand how to do something without having been explicitly programmed to do it. A high profile example is a system that, by watching videos of people driving a car, “taught itself” how to drive. If a computer can teach itself new strategies gleaned from its experience, then its analyses will improve over time without the need for human intervention.

In this way, the WellHealth bot will get ever better at understanding the underlying problems—and the optimal solutions—indicated by out-of-spec conditions at a well. Opportunities for machine learning–based systems cover a wide range, from invoice processing, through failure prediction for equipment and control rooms, to autopilots for helicopters.

  1. Robotics is probably the oldest known technology in this list, but it has undergone dramatic changes in the last five years. Where once limited to fixed locations such as factory assembly lines, the development of high-quality electric motors, and low-cost navigation systems have caused an exponential increase in the number of flying, driving, and swimming robotic systems. In almost all cases their main benefit is that a person does not need to place themselves in a potentially risky situation to either gather the same data or execute a task.

We expect that the number of robotic systems working in oil fields around the world will be nearly a million by 2025. Some will live permanently at a facility such as a refinery, while others will be a part of a technician’s toolkit, as we saw in the story of AB-123. As prices continue to fall, the number of uses for robotics systems will multiply.

  1. Blockchain is a digital ledger that records financial transactions. It is best known as the technology that underpins the virtual currency, Bitcoin, but, it is poised now to simplify contracting and transacting everywhere. Financial services companies, for instance, are testing it as a way to remove clearinghouses and other intermediaries from financial transactions.

In the oil and gas industry, anywhere a contract for performance is required there is a chance it will migrate to a blockchain-enabled agreement. Such contracts may include land royalty, production sharing, or service execution contracts. In each case, the promise of the technology is that agreements can be created, executed, and maintained in a cheaper, more transparent and efficient manner.

These technologies will increase safety and save you money.


These technologies will be key to operating more effectively, and safely, at lower costs. Given what we know about the availability of supply and known reserves of unconventionals that can be brought online quickly at each price level, the next ten years likely will be an era of industry restructuring and cost optimization. But that cannot be done at the expense of safety. These five technologies are critical enablers. Together they can significantly increase the overall efficiency of routine processes by eliminating steps and reducing downtime between tasks. Moreover, they will improve safety, for instance by saving our field tech the need to drive to fetch supplies.

Over the next few years, it will be important for oil and gas companies to track them and their applications, and to participate in their development and adoption. Some applications may rise gradually in the industry; others may rapidly reach a tipping point where processes shift overnight to the new way of working. The move from employees to freelance contractors for field work (the Uber paradigm) could occur quickly under certain conditions; for example, continued cost pressure, a viable “marketplace” app, and rapid adoption in a region. However these technologies evolve, and at what pace, it will be better to run ahead of the curve than behind it.

Source: McKinsey and Company

How will the world satisfy its need for energy? McKinsey research offers a perspective.

When we talk about energy, there does a common ground for everyone to agree upon. For the foreseeable future, at least, the world will need more of it; and it’s production and usage will play a critical role in deciding the future of the global economy, geopolitics and the environment. Taking this under consideration, McKinsey took a hard look at the data, modeling energy demand from the bottom up, by country, sector, and fuel mix, with any analysis of current conditions, historical data, and country-level assessments. On this basis, McKinsey’s Global Energy Insights Team has put together a description of the global energy landscape to 2050.

It is important to remember that this is a business-as-usual scenario. That is, it does not anticipate big disruptions in either the production or use of energy. And, of course, predicting the future of anything is perilous. With those caveats in mind, here are four of the most interesting insights from this research.

Global energy demand will continue to grow. But the growth will be relatively slow – an average of about 0.7 percent a year through 2050 (as compared to an average of more than 2 percent from 2000 to 2015). The reasons behind this decline would be digitization, slower population and economic growth, greater efficiency, to name a few. For instance, in India, the percentage of GDP derived from services is expected to increase from 54 to 64 percent by 2035. By 2035, McKinsey research expects that the fuel required to propel a fossil-fueled car through a mile would be less by almost 40 percent than it is now. By 2050, global “energy intensity” will be half of what it was in the year 2013. From 1990 to 2015, global energy intensity improved by almost a third, and it is reasonable to expect the rate of progress to accelerate.


Demand for electricity will grow twice as fast as that for transport. China and India will account for 71 percent of new capacity. By 2050, electricity will account for a quarter for all energy demand, as compared to the current 18 percent. Now the question arises, how will that additional power be generated? Well, according to McKinsey research, more than three quarters of new capacity (around 77 percent) will be derived from wind and solar, 13 percent from natural gas, and the rest from everything else. The share of nuclear and hydro is also expected to grow, albeit modestly.

What this means is that by 2050, non-hydro renewables will account for more than a third of global power generation—a huge increase from the 2014 level of 6 percent. To put it another way, between now and 2050, wind and solar are expected to grow four to five times faster than every other source of power.


Fossil fuels will dominate energy use through 2050. This would occur, owing to massive investments that have already been made and because of the superior energy intensity and reliability of fossil fuels. The mix, however, will change. Gas shall continue to grow quickly, but the global demand for coal is likely to reach it’s peak by the year 2025. Growth in the use of oil, which is primarily used in transport, will slow down as vehicles become more efficient and more inclined towards being electric. In this case, the peak in demand is likely to be occur as soon as 2030.  By 2050, the research estimates that coal will be down to just 16 percent of global power generation (from 41 percent now) and fossil fuels to 38 percent (from 66 percent now). Overall, though, coal, oil, and, gas will continue to be 74 percent of primary energy demand, down from 82 percent now. After that, the rate of decline is likely to accelerate.


Energy-related greenhouse-gas emissions will rise 14 percent in the next 20 years. That is not what needs to happen to keep the planet from warming another two degrees, the goal of the 2015 Paris climate conference. Around 2035, though, emissions will flatten and then fall, for two main reasons. First, cars and trucks will be cleaner, due to more efficient engines and the deployment of electric vehicles. Second, there will be a significant shift in the power industry toward gas and renewables discussed above. The countervailing trends are that there are likely to be some 1.5 billion more people by 2035, and global GDP will rise by about half over that period. All those people will need to eat and work, and that means more energy.


Given that global energy demand is set to grow, it is likely that prices will continue to be volatile. Better energy efficiency will be helpful in reducing related risks. Technology development is critical to ensuring that the world gets the energy it needs while mitigating environmental harm. This, however, will require substantial new investments. Finally, to encourage the creation of the clean and reliable energy infrastructure that the world needs, it is imperative that the energy producers work with local, regional, national, and international regulators. Getting things right the first time is essential; there is extensive evidence to show that dramatic changes in policy act as a powerful deterrent to energy investments by producers. Given the scale of the new investments needed, this will be a factor of growing importance.


Source: McKinsey & Company


Peak Oil: Myth or Reality?

Posted by sksingh Oct 22, 2016

Whenever we come across shortage of oil, short-term of course, or a hike in oil prices, the very first thing implied is that we’re running out of affordable oil, an idea formally known as the “Peak Oil” concept. Peak Oil may be defined as the hypothetical point when the maximum rate of extraction of petroleum is reached, followed by a terminal decline. According to economists, it is the point at which the oil production maxes out: the easily available reserves are exhausted, and the cost of extracting and refining the remaining stuff exceeds the price it fetches on the open market. There is a lot of debate regarding the Peak Oil Theory, with some experts predicting a rapid decline in oil production with serious implications for the entire human economy and society. If such a decline in production happens too rapidly, it could outpace the development of viable energy alternatives, resulting in a drastic spike in prices. On the other hand, some believe that peak oil is merely a myth, and that the world’s oil supply would never be drained to a point of such crisis.


From a geological perspective, it may be stated that oil production will achieve it’s peak when half of the total ultimate recoverable resources have been produced. However, the actual problem lies in the determination and estimation of the total recoverable conventional oil reserves. Recovery factor and uncertainty are the players of major roles in this case. With various technological advancements, discoveries are being made in virgin areas and in case of old fields, methods of enhanced oil recovery are being put to use. It is essential to keep in mind that, peak oil is about the maxima in oil production, and not about running out of oil. Production is affected by price and price is controlled by the demand and supply economics, i.e. the global oil markets.


Peak oil is not about oil reserves or resources, neither of which translates directly into production rate. Peak oil is not about running out of oil but about its peak in production. Production is the key metric because price is controlled by the balance between supply and demand. So the question is if the ideas of peak oil a myth. If readers are expecting an abrupt decrease in oil production, then it is. But if they understand that the manifestation of peak oil is a struggle between supply and demand that is resolved through global oil markets, they will understand that the data show that peak oil can originate from economic as well as geological factors.


However, an apparent peak in production does not necessarily represent a peak in oil availability, especially in a global market - something that Peak Oil advocates tend to overlook. In fact, a “peak” may just be one of many “spikes”.


With conventional oil production on a plateau and with expensive unconventional sources the only means by which oil production may be increased in the short term, it is clear that societies face a major dilemma. Will the price remain high enough to develop unconventional sources and, in doing so, limit economic growth? Even so, can the production rate of unconventional oil ever be enough to support the concept of an “energy revolution,” much less “oil energy independence”? The grey areas remain grey still as well.



Researchers from the Technion-Israel Institute of Technology have developed a bio-photo-electro-chemical (BPEC) cell that produces electricity and hydrogen from water using sunlight, by using a simple membrane extract from spinach leaves. The raw material of the device is water, and its products are electric current, hydrogen and oxygen. The findings were published in the August 23 online issue of Nature Communications.

The extraordinary combination of a human-made BPEC cell and plant membranes, which absorb sunlight and convert it into a flow of electrons with high efficiency, paves the way for the development of new technologies for the creation of clean fuels from renewable sources: water and solar energy.

The basic concept involved in the development of a BPEC cell is based on the naturally occurring process of photosynthesis in plants, in which electrons are driven by light and give rise to storable chemical energetic molecules that act as fuel at the cellular level.

An iron-based compound was added to the solution by researchers, in order to utilize photosynthesis for producing electric-current. The compound mediated the transfer of electrons from biological membranes to the electric circuit. The electric current thus created was then channeled to form hydrogen gas through the addition of electric power from a small photovoltaic cell that absorbed the excess light. This made it possible to convert solar energy into chemical energy that was stored as hydrogen gas formed inside the BPEC cell. This energy could be converted when required into heal and electricity by the burning the hydrogen in the same way hydrocarbon fuels are used.

The interesting part lies in the fact that unlike hydrocarbon fuels, which emit greenhouse gases when burnt (which pollutes and harms the environment), the product of hydrogen combustion is clean water.

Therefore, this is a closed cycle that begins with water and ends with water, allowing the conversion and storage of solar energy in hydrogen gas, which could be a clean and sustainable substitute for hydrocarbon fuel.

The study was conducted by doctoral students Roy I. Pinhassi, Dan Kallmann and Gadiel Saper, under the guidance of Prof. Noam Adir of the Schulich Faculty of Chemistry, Prof. Gadi Schuster of the Faculty of Biology and Prof. Avner Rothschild of the Faculty of Material Science and Engineering.

"The study is unique in that it combines leading experts from three different faculties, namely three disciplines: biology, chemistry and materials engineering," said Prof. Rothschild. "The combination of natural (leaves) and artificial (photovoltaic cell and electronic components), and the need to make these components communicate with each other, are complex engineering challenges that required us to join forces."


Source: American Technion Society

For the last two years, global oil prices have been in free fall. The crude prices fell from $100/barrel in June 2014 to less than $33/barrel in February 2016. And let’s face the harsh reality: fossil fuels are not going to last forever. Ultimately, at some point of time, they are going to exhaust. And then the question arises: What next? Alternate sources of energy like solar power, wind energy etc, may be efficient, but only in some particular cases. Moreover, they are most certainly cost-inefficient, and in turn, not feasible at a major scale.


An innovative mechanism that can be taken into consideration is that of converting energy (in a particular form) to a hydrocarbon fuel. Audi, a high-profile German automobile manufacturer, in collaboration with an energy technology company named Sunfire, has created a ‘green’ diesel fuel, thus putting forth a carbon neutral way of powering vehicles. Experts employed the use of renewable energy to convert carbon dioxide and water into a very specific form of crude oil known as the ‘blue crude’, which was then refined into diesel. It is common knowledge that carbon dioxide, a greenhouse gas, has an adverse impact on the environment, as it results in global warming. However, with this particular technology, it can be used as a raw material for making blue crude, along with the second base component, i.e., water.


As per the claims made, the entire process of producing blue crude, right from the onset to the very end, can be powered by renewable energy and an efficiency rate of 70% can be achieved. Further, blue crude can be refined to produce e-diesel, or it may be blended with regular diesel. Being synthetic in nature, this fuel does not contain any aromatic hydrocarbons, which acts as an incentive because the pollution levels are lowered.


This is an innovative, future-oriented technology, which will prove highly beneficial for all generations to come. Not only does this come across as a lucrative choice in the times when the oil market is fluctuating, but also causes relatively negligible harm to the environment, by cutting back on emissions. Furthermore, with global warming on the rise, and ozone layer on the verge of greater depletion, it is absolutely essential that carbon dioxide levels in the atmosphere are brought down. This technology provides an opportunity to do so, and an added incentive of producing energy at the very same time. The road ahead, therefore, is as bright as it could possibly be.


Over the last couple of years, the global oil and gas industry has waded through deep waters with oil prices sliding precipitously. Within a matter of months, oil companies that had made heavy investments based upon the rosy forecasts, resorted to slowing or halting operations. Quite recently, the slight price rebound has boosted optimism and efforts are under way to limit expenditure. However, it is still important to explore more strategies to boost efficiency, no matter how uncertain the long-term forecasts might be. 


Given the fact that we're living in a tech-oriented world, oil executives should consider digital technologies that have the potential to transform operations and create additional profits. Research has found that upon the effective use of digital technologies in the O&G industry, capital expenditure can be reduced by up to 20%.


O&G companies were pioneers of the first digital age in the 1980s and 1990s. Use of technologies like 3D seismic, linear program modeling of refineries and advanced process control unleashed new hydrocarbon resources and helped deliver operational efficiencies across the value chain. Thanks to the latest advancements, we are now poised for a second digital age that could further reduce costs, unleash unparalleled productivity and boost performance by a significant measure.


The visibility and clarity delivered by digital technologies and advanced analytics can yield unprecedented, granular views into operations, increase agility and support better strategic decision-making. McKinsey conducted a research on more than 100 use cases at oil and gas companies and identified three categories for the application of digital technologies:


  1. Operations of the future. While advanced analytics are being used to transform functions such as procurement and to support better decision making, the latest technologies, such as drones and equipment sensors, are also revolutionizing monitoring and maintenance. Use of advanced analytics for predictive maintenance can help reduce the maintenance costs by up to 13%. At one company, where maintenance costs accounted for 25% of operating expenses, this enabled preemptive equipment maintenance—in effect, vital equipment could be repaired before it broke down. This strategy lowered costs by up to 27% while increasing reliability and uptime. Advanced analytics for energy and yield also has the potential to increase energy efficiency by as much as 10%.
  2. Reservoir limits. By integrating digital applications, companies have been able to increase their reservoir limits significantly, resulting in a decrease of up to 20% in upstream and downstream capital expenditures. Use of 4D seismic over 3D seismic, gives the added advantage of time-lapse thus enabling companies to measure and predict fluid changes in reservoirs. This enhanced view of reservoirs typically increases the recovery rate by as much as 40% boosting upstream revenue by up to 5%..
  3. Digital-enabled marketing and distribution. In various industries, digital technologies are employed to gain a better insight into consumer habits and preferences, optimize pricing models, and manage supply chains more efficiently. Oil companies are applying these same methods, with impressive results, potentially increasing revenue by up to 1.2%. By using geospatial analytics, for instance, executives are increasing the efficiency of their supply and distribution networks through location planning and route optimization. Collectively, efforts in this category have lowered costs by up to 10% and increased revenue by 3%.

Keeping in mind the current scenario of the global oil and gas industry, companies need to reinvent themselves to improve productivity. While capital expenditures or acquisitions might result in pauses, investing in digital technologies is a no-regrets move that could increase production from existing operations. Moreover, these technologies are readily available and have proved their value in the form of reduced operating costs, increased efficiency, and revenue generation. Hence, oil companies should move quickly to embrace digital for it could be the difference between leading the next wave of industry innovation and being left behind.


Source: McKinsey and Company

The Oil and Gas Industry is currently abuzz with the recent OPEC deal, wherein an agreement to cut back on production was reached. This marks the first time OPEC stepped in to manage production since 2008, when production quotas were abandoned due to the prevailing global economic crisis.

The biggest monthly gain since April was recorded after the Organization of Petroleum Exporting Countries agreed to limit production for the first time in eight years, at a meeting in Algiers. The unveiled plan involves reducing the production to a range of 32.5 million to 33 million barrels a day, with the hope of providing a boost to the oil price. The outlined accord, thus, indicates cutting back in production by as much as 750,000 barrels a day. The quotas for the same are scheduled to be decided at the OPEC’s next formal summit in Vienna, on November 30.

Although the oil prices have been falling for almost two years, Saudi Arabia, the most influential member of the OPEC, did not cut back on production. A major stumbling block in reaching an agreement till date has been Iran’s commitment towards boosting its production. Both the countries, being arch rivals, had refused to sign on to any production curbs unless the other did, too.

The OPEC deal finalized on September 28, became possible due to the mediation of Russia, Algeria and Qatar. While countries like Venezuela and Algeria can ill afford to lose oil revenue by reducing production, OPEC has said that Iran, Libya, Nigeria and maybe, even Iraq, would be treated differently, without further specifications. Russia, on the other hand, has shown inclination to be a part of the OPEC plan and as obvious as it is, if more non-OPEC member get on board, prices will surely become higher. On October 3, oil rose by more than 1%, with Brent settling above $50 a barrel for the first time since August, after Iran called in for support from non-OPEC members.

Amidst all the skepticism and uncertainty, there is a fairly good chance that the odds will work out and this deal will succeed in raising the oil prices by at least $10 a barrel, by early 2017. There are plenty of governing factors, of course, and a lot rests on what will be discussed in November at the OPEC’s next summit in Vienna.

Well, this might just be the long overdue silver lining we’ve all been looking for. The rest, as they say, only time will tell.