Overestimation of US Gas Production Growth
“Kayrros projects that domestic output will average 73.7 billion cubic feet per day in October, far lower than the US Energy Information Administration’s (EIA) prediction of 76.9 Bcf/d.” Full article available in the Natural Gas Week from Energy Intelligence.
Kayrros anticipated shift in US lower 48 oil supply and storage
Kayrros anticipated shift in US lower 48 oil supply and storage confirmed by latest market data. See note here.
The Oil Games Episode 2
In the first episode of the Oil Games we met the Players and discovered the Rules of the Game. A surprising discovery of that first episode was that a ‘discovery’, whether in the world of innovation or in the search for oil and gas, doesn’t rhyme with ‘surprise.’ It might indeed come as a surprise that discoveries have nothing to do with the legend of the great scholar or the magic of serendipity. Oil and gas discoveries, like technological innovation, are first and foremost a matter of budget. In the search for underground deposits, just as in the race for the next disruptive technology, funding is the key. The business of discovery is a business like any other. So what drives investors to allocate funding to the pursuit of discovery? As always, it is the expected return on investment. And the return on investment itself depends on the structure of the industry in which we are working—monopolistic, competitive, or somewhere in between. Which brings us back to game theory, and the strategies adopted by the various Players. Read the full article here.
Bottlenecks Are Holding Back a Second Shale Boom
“The U.S. is now less than 200,000 barrels per day off its June 2015 high of 9.6 million barrels per day, and analysts expect production to keep growing. But as good as all of that sounds, it could be even better. As the FT reports, shortages of drilling rigs and roughnecks to operate them are holding back even more impressive output increases” See article here
La production de pétrole de schiste victime de son succès aux États-Unis
“Décidément, le marché pétrolier n’en finit pas de déjouer les pronostics. Le rebond de la production de brut aux États-Unis pourrait être moins important que prévu, note le Financial Times.” Selon Le Figaro.
Shortage Of Fracking Crews Slows The Shale Boom
“Some of the constraints that shale companies will run into are on the access to oilfield services (OFS), including rigs, equipment and personnel, according to Kayrros, a French research firm backed by the former CEO of OFS giant Schlumberger, and reported on by the FT”. Read the full article here.
French Consultancy Warns of Slower US Oil Growth
“The main theory that we have is that there is more inertia in the ramping-up of the fracking sector,” Antoine Rostand, president of Kayrros, told Oil Daily. “We see, obviously, production growth, but probably slower than what most analysts are projecting.” Full article available in the Oil Daily from Energy Intelligence.
US oil output growth hit by lack of operators and equipment
Kayrros President, Antoine Rostand, on the US crude oil production growth in the Financial Times.
The Oil Games - Chapter 1
The Oil Games are as a series of interconnected episodes in which we will try to explain and predict market behavior using Kayrros’ extensive knowledge of the energy industry, the world economy, mathematics and game theory in particular. The series’ target audiences include the practitioners, investors, and observers of the oil industry who are interested in finding new ways of understanding this fascinating business. The authors are Jean-Michel Lasry, Antoine Halff and Antoine Rostand. This is an ongoing story with future episodes being published in sequence by Kayrros. Here is the inaugural installment, in which we propose to apply the economic model of innovation to the oil and gas sector.Read the full article here.
Transparency used to be a dirty word in energy — now it’s turning into the norm
Article on the need for greater transparency in the energy sector and how Kayrros is helping in that space, in the Business Insider UK
Offshore rig operators reel from oil price rout
Antoine Rostand, President of Kayrros, comments on the impact of low oil prices for offshore rig operators in the Financial Times.
Oil veterans’ new frontier
Kayrros revolutionizing energy markets - Andrew Gould, Chairman of Kayrros’ Advisory Board and Antoine Rostand, Kayrros President, on their new venture, in the Financial Times.
Oil Field Services – A seller’s market in the making?
Oil Field Services – A seller’s market in the making: Antoine Rostand, President of Kayrros , explains how the current landscape is likely to impact mergers, acquisitions and consolidation in the oil field services sector.
The recent increase in oil price to slightly above $50 is a welcome development for the oil and gas industry, but I do not foresee any dramatic short term changes in the direction taken by oil and gas companies to implement aggressive cost reduction measures and tighter management of new projects. One of the sectors severely impacted by these sweeping changes is oil field services - a vital segment in securing the longevity of the industry as a whole.
Oil field service providers have historically jostled for lucrative contracts with international and national oil companies (IOCs and NOCs) but with the oil price decline, these companies have reduced CAPEX and OPEX and squeezed service providers on their margins.
While for each individual oil and gas operator this may make perfect sense in the short term, what may not be as evident is that when the whole industry acts in this way it causes years of disruption for the oil field service industry. In response, oil field service firms are forced to take drastic measures. Measures, which cannot easily be undone and a have far-reaching impact on four key drivers required to meet any future increase in demand for oil field services as and when production increases.
With personnel being at the heart of any oil and gas operation, it is never an easy decision to let people go in order to drive down costs. Nevertheless in the current market, oil and gas companies are resorting to curbing recruitment or implementing hiring freezes which have had knock-on effects on the global oil and gas recruitment pool. Universities are having to shrink their curriculums, leaving fresh graduates frustrated with their career choices and most likely seeking alternative career paths in the long run. This will no doubt have hard-hitting medium-to-long-term consequences for an industry that has for years been preparing itself for the ‘big crew change’.
At the sharp end of upstream oil and gas, we are witnessing the very real impacts of persistently low oil prices with all but the latest 6th and 7th generations of technologically advanced rigs being retained (stacked) for a much-anticipated future uptick in the workload. For the rest, unfortunately the scrap yard beckons. It is a tough decision to make as even by stacking expensive drilling rigs and platforms, oil and gas operators face losing thousands of dollars daily for crew and equipment upkeep – upwards of $40,000 a day in regions like the Gulf of Mexico for instance.
The US shale market – seen as the proverbial canary in the coalmine for the rest of the conventional oil and gas industry – has been hit hard by low oil prices. Between 2012 and 2015 key shale oil and gas producing regions in the US have witnessed drilling activity drop off dramatically. Oil service majors who serve these regions and who are already under immense cost-reduction pressure, are opting to dig into and cannibalize existing inventories. Additionally, in the current market, these companies are likely to hike up their rates to recover costs before considering investment in new hardware.
Engineering Procurement and Construction
Current research suggests that the order books of engineering procurement and construction (EPC) companies could potentially dry up within the next two years due to projects being cancelled or put on hold. Without the availability of a minimum level of oil and gas project work and with no new projects on the horizon, capacity is being eroded among EPCs as well.
As oil prices are anticipated to rise so too will the need for oil service companies by NOCs and IOCs, however, when that happens, the fear is that there is likely not going to be the required service capacity in the market.
There will also be a lack of qualified people, rigs and fracking equipment. Add to the mix, the impact on EPC contractors and you have a perfect scenario for a seller’s market for services. It’s a scenario of collective suicide for oil and gas companies who will not be able to ramp up production as rapidly as they think as they will have to wait for service companies to catch-up and rebuild the industry.
This new landscape has the potential to create fertile ground for a new round of mergers, acquisitions and consolidation in the oil services sector. The picture for the industry is anything but rosy going forward but all is not lost - there are clear steps oil and gas operators can employ to remedy the current situation.
*The findings in this post have been presented to the OPEC R&D Forum