NewEnergyNews: TODAY’S STUDY: THE RISKIEST ENERGY IN THE WORLD

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The challenge now: To make every day Earth Day.

YESTERDAY

  • FRIDAY WORLD HEADLINE-Aussie Farmers Worrying About Climate Change
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 1
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 2
  • FRIDAY WORLD HEADLINE-New Energy And Historic Buildings In Europe
  • THE DAY BEFORE

    THINGS-TO-THINK-ABOUT THURSDAY, December 1:

  • TTTA Thursday-First Daughter Ivanka May Fight For Climate
  • TTTA Thursday-Low Profile High Power Ocean Wind Energy
  • TTTA Thursday-A Visionary Solar Power Plant
  • TTTA Thursday-EVs Have A Growth Path
  • THE DAY BEFORE THE DAY BEFORE

  • ORIGINAL REPORTING: How The Clean Power Plan Drove The Utility Power Mix Transition
  • ORIGINAL REPORTING: How Utilities Are Answering The Distributed Energy Resources Challenge
  • ORIGINAL REPORTING: Looking At New Rates To Unlock The Utility Of The Future
  • THE DAY BEFORE THAT

  • TODAY’S STUDY: The Power Potential Of Personal Wind
  • QUICK NEWS, November 29: Climate Change Forces Hard Choices In Alaska; New Energy To Utilities-“Can’t-Beat-Us-So-Join-Us”; Fact-Checking Trump Hot Air On Wind
  • AND THE DAY BEFORE THAT

  • TODAY’S STUDY: Getting More New Energy On The Grid
  • QUICK NEWS, November 28, 2016: Pope Talks Climate Change At Trump; Solar Comes To The Mall; The Big Possibilities Of Backyard Wind
  • THE LAST DAY UP HERE

  • Weekend Video: Why President Trump Can’t Stop New Energy
  • Weekend Video: 7 Things Climate Change Will Mean
  • Weekend Video: Wireless EV Charging Stations
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    Anne B. Butterfield of Daily Camera and Huffington Post, f is an occasional contributor to NewEnergyNews

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    Some of Anne's contributions:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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      A tip of the NewEnergyNews cap to Phillip Garcia for crucial assistance in the design implementation of this site. Thanks, Phillip.

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    Pay a visit to the HARRY BOYKOFF page at Basketball Reference, sponsored by NewEnergyNews and Oil In Their Blood.

  • ---------------
  • WEEKEND VIDEOS, December 3-4:

  • Trump Truth And Climate Change
  • The Daily Show Talks Pipeline Politics
  • Beyond Polar Bears – The Real Science Of Climate Change

    Wednesday, August 27, 2014

    TODAY’S STUDY: THE RISKIEST ENERGY IN THE WORLD

    Oil & Gas Majors: Fact Sheets

    August 2014 (Carbon Tracker Initiative)

    Executive Summary

    Overview: Key Points

    1. The oil & gas sector is currently facing pressure from investors to focus on capital discipline, and several majors have stated that their capex will either fall or stay flat over the coming years.

    2. In order to sustain shareholder returns, companies should focus on low cost projects, deferring or cancelling projects with high breakeven costs. Capital could be redeployed to share buybacks or increased dividends.

    3. This process has already started, particularly in the Canadian oil sands sector. The majors’ portfolios include several significant arctic and deep water/ultra-deep water projects which could prove low return assets in a low-demand scenario. Deferral or cancellation of these might protect shareholder returns.

    4. Collectively, the majors have a potential capital spend of $548bn over the period 2014-2025 on projects that require a market price of at least $95/bbl for sanction (34% of total capex on all their projects).

    5. $357bn of this is on high cost projects that are yet to be developed. Such projects are candidates for deferral or cancellation.

    6. Investors may wish to push companies for more detailed disclosure of project level economics, and challenge developments that carry an undue risk of wasting capital and destroying value.

    Introduction

    CTI has demonstrated in its research the mismatch between continuing growth in oil demand and reducing carbon emissions to limit global warming. Our most recent research with ETA to produce the carbon cost supply curve for oil indicates that there is significant potential production that could be considered both high cost and in excess of a carbon budget. We have focused our research on undeveloped projects that, allowing for a $15/bbl contingency, would need a $95/bbl market price or above to be sanctioned (i.e. a market price required for sanction of $95/bbl is equivalent to a project breakeven price of $80/bbl), as they are the marginal barrels that could be exposed to a lower demand and price scenario in the future.

    This note examines the seven largest publicly listed oil companies’ potential future project portfolios looking at production and capex using Rystad Energy’s UCube Upstream database (as at July 2014). “Capex” and “production” in this note (amongst other terms) are thus based on Rystad’s analysis and expectations of the company’s potential projects. The companies’ planned or realised capex and production may differ from these projections. Where possible we have sought to verify the status of the projects at the time of writing. A $15/bbl premium has been included in the required market prices for sanction of oil sands projects to account for additional transport costs. Individual company portfolios and exposure to high-risk projects are contained in the individual company factsheets which accompany this summary comparison.

    Projects Shelved

    There have been some recent examples of projects being put on ice by the majors. In the oil sands in 2014, Total and Suncor have shelved the $11bn Joslyn project1 and Shell put on hold its Pierre River project2 . Deepwater projects have also been deferred with BP not proceeding with its Mad Dog extension in the Gulf of Mexico3 , and Chevron reviewing its $10bn Rosebank project in the North Sea4. In the Arctic, Statoil and Eni have deferred a decision on the $15.5bn Johan Castberg project5.

    Some companies are therefore already starting to demonstrate greater capital discipline amidst falling group returns. This is becoming increasingly necessary as near term cash flows are not sufficient to maintain both dividends and capital expenditure plans. In the short-term companies have squared the circle by selling assets or adding debt. Cutting capital spend should improve corporate cash flow statements as could new cash flow from new projects. But with some companies continuing to sanction projects at the high end of the cost curve, hence increasing operational gearing, shareholder value could be put at risk should demand and hence oil prices be lower than the majors anticipate.

    Potential Production

    • Shell has one of the highest proportions of high-cost potential production, with 45% requiring a market price of $75/bbl and 30% requiring at least $95/bbl, although ConocoPhillips has the highest cost production profile with 56% and 36% respectively.

    • Eni and BP have the portfolios with the lowest oil market price requirements, 30% and 40% of which respectively requiring above $75/bbl and 15% and 21% of which respectively requiring at least $95/bbl.

    Potential Capex

    • Turning to capital spend in the nearer term (2014-2025) Total and ExxonMobil’s capital budgets have some of the highest oil price requirements, with 60% and 68% respectively on potential projects requiring a market price of at least $75/bbl for sanction and 40% and 39% requiring at least $95/bbl (including a $15/bbl contingency allowance).

    • Shell is not dissimilar with 65% of its potential capex requiring a market price over $75/bbl and 37% over $95/bbl.

    • BP and Eni again have the lowest proportion of high-price requirements, with 25% and 28% on projects that need a market price of at least $95/bbl for sanction, although Eni and ConocoPhillips have the least exposure to projects that would be need at least $75/bbl with 54% and 59%.

    • Looking at just undeveloped projects, 27% of Total’s and 26% of Shell’s capex in this category requires a market price of $95/bbl+.

    • By contrast, only 17% of ConocoPhillips’s potential capex budget is on high-cost projects that are as yet undeveloped. BP and Exxon have the second lowest exposure with with 20% of their capex in this category.

    • “Undeveloped” in this sense comprises fields where a discovery has been made (“discovery”) and where no discovery has been made (“undiscovered”)

    • Oil sands projects account for 27% and 26% of Shell and ConocoPhillips’s high-cost potential development spend.

    • Capital spend on undeveloped, high-break even projects is heavily biased towards the unconventional category, with just 14% of overall potential spend on conventional projects.

    • BP and Total have particularly high exposure to deep water developments, with deep water and ultra-deep water in aggregate representing 78% and 73% of potential high cost spend respectively.

    • ConocoPhillips is heavily biased towards arctic projects proportionately, which represent 24% of potential spend compared to an average of 5% amongst the other majors.

    Cancellation Candidates

    Focusing on individual projects for each company, there are a number of undeveloped, high-cost projects which are prime candidates for cancellation…The top twenty largest projects which represent high-risk, high-cost options for the oil majors…are primarily a mix of Alberta oil sands and deep water projects in the Atlantic, which would represent $91 billion of capital (over the period 2014-25). This capital could instead be returned to shareholders rather than being put at risk in projects that are already high cost and low return. Such projects have high operational gearing, putting shareholder returns at risk in a low oil price environment.

    Key Questions

    As well as specific questions on high cost projects and risk concentration identified for each company, investors should continue to push for disclosure on the following issues across the sector:

    1. How does continuing dependence on oil fit with the imperative to tackle climate change recognised by most oil companies?

    2. How would a range of oil prices impact your project economics and hence future earnings?

    3. How does the current strategy of reinvesting revenues in high cost oil projects deliver shareholder value in a low demand, low price scenario?

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