Article

2015-11-02 Arabia

Saudis could run out of cash in about five years

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by Steve White 2015-11-02 00:00|| || Front Page|| [11130 views ] Top

#1 That's amazing.

At one time KSA's cost per barrel delivered to Andover Delaware was $0.75 per barrel due to the nationalization of most oil production and the fact that KSA oil is under pressure from vast gas deposits, requiring no pumping, just a Christmas tree and a spigot as it were to get the oil out of the ground.

If they need $106 a barrel oil with their minuscule cost of production, they have really been overliving their means.

Of course, the second oil gets above $75 a barrel, our buddies in South Texas and North Dakota crank up the oil shale, tar sand and fracking and cap price growth at about $80 a barrel,

The Saudis probably won't see $106 a barrel oil again and I hope they enjoy riding camels and living in their mansions without electricity or running water...sort of back to their roots.

Posted by Mystic 2015-11-02 01:34|| 2015-11-02 01:34|| Front Page Top

#2 need to stop funding mosques/madrasses worldwide

Posted by paul 2015-11-02 04:06|| 2015-11-02 04:06|| Front Page Top

#3 The biggest threat to Saudi Arabia and big oil cartels over the past few generations has been the small "independent" oil companies.

Oil prices are, of course, a function of supply and demand. But without the market leverage enjoyed by the oil giants, small independent companies have no choice but to undercut international oil prices in order to get their product to market. A tactic long despised by the oil giants.

In 2005 Saudi Arabia estimated that the optimal revenue for Saudi oil would be achieved at an international price of about $170 per barrel.
It was only the willingness of the independent oil companies to sell their oil in the $80 per barrel range that has kept the price of oil down to about $100 per barrel for most of the past decade.

Independent oil and gas producers increasingly account for a larger percentage of domestic production in the near offshore and lower 48 states. Independent producers' share of lower 48 states petroleum production increased from 45 percent in the 1980's to more than 60 percent by 1995. Today the IPAA reports that independent producers develop 90 percent of domestic oil and gas wells, produce 68 percent of domestic oil and produce 82 percent of domestic gas.
Clearly, this is a situation that neither Saudi Arabia nor the major oil giants are willing to tolerate.

In 2012, it cost an independent oil company an average of $67.23 to produce a barrel of oil. It sold that oil for an average of $82.60 per barrel. That's a 22% margin... thin compared to some other oil giants. For example, it cost oil giant Exxon Mobil $9.28 to produce a barrel of oil. Its average global price over the same period was $100.79 per barrel. That's a 90% profit margin.
Because of their high operating costs, small oil companies have thin profit margins.
When oil prices rise, their thin margins can soar... along with share prices. But when oil prices fall, this leverage works the other way... and share prices can plummet causing investor panic.

Large global companies are well positioned to play the long game. But smaller companies have smaller budgets and are more exposed. They do not have the financial muscle to withstand a prolonged price fall. Hundreds of smaller and mid-tier oil and gas explorers - and their investors - will be rethinking their business plans urgently as analysts begin predicting waves of mergers and acquisitions as firms seek out rescue deals. The falling share prices create bargains for larger predators with deeper pockets.

It is telling that OPEC has boosted production by almost 1.5 million bpd since November 2014, which has helped cut oil prices more than half to below $50 a barrel today.
OPEC and the oil cartels have already proven during the 1970's, and again during the 1990's, that they are willing to drive oil prices to as low as $9.00 per barrel, if that is what it takes, to rid themselves of the smaller competitors they have despised for decades.

OPEC's strategy is to create the conditions for higher than $200 per barrel oil in the next couple of years' time.
Saudi Arabia and the oil cartels long-game strategy is clearly working out the same as in the past.
And Obama's over-regulation of U.S. oil companies plays directly into OPEC's hand.

Posted by junkiron 2015-11-02 10:40|| 2015-11-02 10:40|| Front Page Top

The Saudis probably won't see $106 a barrel oil again ....

This is approximately as likely as the idea, widely accepted only a couple of years ago, that crude would never drop below ~$100/bbl again. The fundamental metric that everyone glosses over is that global oversupply is presently equal to approximately half a year's natural decline from existing wells. Thus: stop drilling, wait half a year and supply and demand come into balance with an attendant meteoric rise in prices. Drilling of course won't stop and thus it'll take a bit longer and the price rise will be more gentle but given the level of present investment it's unavoidable that prices will be going up in the not-too-distant future.

Also, consider the effect of the eventual, and likely unavoidable, instability in oil producing nations that will result from prolonged low prices as thugocracies the world over run out of money with which to buy the acquiescence of the yokels. See e.g., the million bbl/day (something on the order of half the present global oversupply) that the Hildebeeste's little Libyan war took off the market for a year. Now imagine what happens when it's Persians vs Jews, Shia vs Sunni, ISIS vs the House of Saud, etc. The present oversupply of crude is sufficient to absorb a modest geopolitical shock. A large one or multiple simultaneous shocks? Kaboom!

It's also worth considering that what just happened in the US oil patch was the horizontal driller's equivalent of the dot-com bubble. E&P's are almost exclusively (junk) debt financed entities and the finance kiddies who stuffed so many billions into the boom are mostly of an age that they were likely at mommy and daddy's house watching Power Rangers though the last real oil shock / boom and were thus unprepared for what comes next (now). Namely desperate production of as much as possible prior to capital exhaustion in hopes of surviving followed by defaults, consolidation and a much slower and more rational expansion by the survivors as markets recover. I'd wager that in a year half the E&P's with horizontal wells in the US will be tits-up. No one is going to be excited about issuing (or buying) new debt to finance expansion of production from assets that produce at, or anywhere near, the marginal cost of production. Think of it as market instability resetting the investment bar higher.

Then there's the relative strength of the dollar presently depressing prices, the socialist in the White House cutting the legs out from under the US economy, etc.

Personally I'd wager that we'll see oil top $100/bbl in the next five years and likely stabilize at prices significantly above today's much sooner.

Posted by Halliburton - Foreign Affairs Division 2015-11-02 11:56|| 2015-11-02 11:56|| Front Page Top

#5 OPEC's strategy is to create the conditions for higher than $200 per barrel oil in the next couple of years' time.

The Treasury and Fed are working hard to make that come true by debasing the currency as fast as they can get away with it and the ruling caste keep a strangle hold on the Beltway. Keep printing and creating money without backing. The power brokers can lose half the value of their holdings and still be 'comfortable' which is not the same for the middle and lower class.

Posted by Procopius2k 2015-11-02 12:51|| 2015-11-02 12:51|| Front Page Top

#6 In today's government driven demand economy, less expensive is not a successful marketing strategy.

Halliburton nailed it.

Posted by Besoeker 2015-11-02 13:54|| 2015-11-02 13:54|| Front Page Top

#7 I suspect control of Mecca and Medina rank high on the lists of both ISIS and Iran.

Posted by rjschwarz 2015-11-02 13:57|| 2015-11-02 13:57|| Front Page Top

#8 Meanwhile Low Energy Nuclear aka Cold Fusion continues to move ahead.

NASA plans to use LENR thrusters in deep-space probes.

Link

Posted by phil_b 2015-11-02 18:47|| 2015-11-02 18:47|| Front Page Top

#9 Mehhh, given various Pert claims on the Net that both Alaskan + Dakotas Shale oil regions are running out of oil or very soon will be, I'm more concerned about the state of the KSA'S, ME's, + World oil reserves through 2050 + beyond.

Posted by JosephMendiola 2015-11-02 21:49|| 2015-11-02 21:49|| Front Page Top

22:01 JosephMendiola
21:56 Frank G
21:49 JosephMendiola
21:39 JosephMendiola
21:36 JosephMendiola
19:59 Zenobia Floger6220
19:56 JosephMendiola
19:48 phil_b
18:47 phil_b
18:41 Pappy
18:40 Pappy
18:35 49 Pan
18:32 49 Pan
18:19 CrazyFool
18:19 KBK
17:52 CrazyFool
17:49 CrazyFool
17:22 Ebbang Uluque6305
17:17 Skidmark
17:15 Skidmark
17:05 Ebbang Uluque6305
17:04 Nguard
16:59 Ebbang Uluque6305
16:25 Alaska Paul