Why use a 5-year window?
Posted by Heading Out on September 17, 2005 - 1:51pm
In discussing the rate at which projects become productive fields, the discussion has usually just looked at new projects out to 2010. It is illustrative in explaining why this 5-year window is chosen to look at the case of Cepu, an oilfield in Indonesia, to be developed by Exxon Mobil. In terms of a help toward future supply this block holds some promise.
Jakarta estimates Cepu block on Java island could hold more than 500 million barrels of oil and could boost Indonesia's production by as much as 180,000 barrel-per-day (bpd) -- equivalent to about 19 percent of the country's current output.But the story notes that it has taken four years to get this far - to the signing of a development contract, and that oil may begin to flow by 2008. With a normal ramp up in production, one might therefore anticipate that the field would be unlikely to be in full production before 2010. It is because there are many examples of this type, where both negotiation and development times are significant, that it is likely overly optimistic to look much beyond the currently planned projects to anticipate supply capabilities up to 2010.
Thank you for this insight into your industry. I questioned (in a very poor way in another session!) how costs change with respect to production rate. It sounds like upgrading, improving, expanding withdrawel rate WHEN prices are rising is often a money losing proposition.
This is due to higher cost for everything related to extraction and IS NOT offset by the additional oil brought to the surface. Huge costs for an incremental increase in production.
Did I understand this correctly?
Also, and I think you and J. have touched on this before, does this mean raw material costs are rising faster than energy (oil & NG) prices?
There's not much there, unfortunately, nor was there much in the multimedia presentation we got access to lately from the CERA analysts. However, making an elementary point here, overall depletion in existing conventional crude oil sources is inexorable and never delayed while new projects are subject to the exigencies of investment, market price, technology, geology and politics. This must have been part of why Jean Laherrere thought that all new projects should come with an associated "probability of successful [projected] production [by the target date]" calculation.
Now, I realize oil projects are different beasts. However, I would think that we could come up with a way to obtain a probability estimate for a project's: a) chance of starting on schedule b) hitting peak production.
We have a lot of historical data for this sort of thing.
The problem is that if you are doing mortality of people, that you will have a large enough sample you can be pretty sure that actual mortality will be pretty close to the actuarial tables.
If you had thousands of oil projects, the hurricanes and wars could be dealt with in terms of probabilities, but there are just a handful of projects - not enough that one can rely upon statistics like this.
True enough for major projects - but what about smaller projects? Are there enough that in aggregate, they might provide a not-insiginificant percentage of additional production?
And does this also apply to extensions or infill of existing fields? That sort of work does a lot to maintain output beyond forecasts, but does not always show up in the press releases. I doubt tbat, however long the list of planned major projects is, it accounts for more than 75% of rig activity.