Bad Bodings in Black Gold

From: Glenn Morton <>
Date: Sun Jan 25 2004 - 17:31:00 EST

I reported last week on a statement by the President of Opec that they were
producing all out and couldn't reduce the price of oil by raising the volume
produced. Friday, the Saudi Oil Minister was asked the same question. He

“We would like to see the price stay straight within the band at $25. We
would be very happy. That would be a miracle if we can do it, but I don’t
think we will ever be able to do it,” Naimi said.
Accessed 1-23-04

In fairness, OPEC is thinking of changing from dollars to Euros because of
the dollar's drop and that might have some effect on their decisions. But
both men are claiming that OPEC production is maxed out.

Also Friday the Wall Street Journal reported on a Wood-Mackenzie study which
casts doubt on the oil found through exploration--i.e. brand new oil. Two
things jumped out at me.

Oil found by exploration drill bit
1997 4.5 billion
1998 5.8 billion
1999 9.5 billion
2000 13.05 billion bbl
2001 4.02 billion bbl
2002 3.34
Chip Cummins, “Data Cast Doubt on Oil Discoveries,” Wall Street Journal,
January 23, 2004, p. A2
        “Wood Mackenzie also found that annual exploration cost for the 10
companies as a group exceeded the estimated value of annual new discoveries
made in both 2001 and 2002—a reversal from previous years.” Chip Cummins,
“Data Cast Doubt on Oil Discoveries,” Wall Street Journal, January 23, 2004,
p. A2

If one can't make money by exploring for oil, one will cease doing so. And
this raises the next item.

Thursday I was privileged to give a talk to the American Association of
Petroleum Landmen. This is the organization which represents those who do
the contracts for the land, allowing us to drill and produce a particular
piece of land. Without them, we geophysicists couldn't find a drop of oil.
The talk was on the History of Seismic in the Gulf of Mexico. One of the
other speakers, with whom I spoke the night before at the Speaker's Dinner,
was Chris Oynes, the Director of the Minerals Management Service in New
Orleans. His talk gave some fascinating statistics about what is happening
in the Gulf of Mexico. He expressed some concern about the drop in drilling
activity. Throughout his talk, I was furiously scribbling notes from his

The Gulf drilling has dropped precipitously in the last 2 years.

1996-- 1188 wells
1997-- 1219 wells
1998-- 1034 wells
1999-- 1121 wells
2000-- 1232 wells
2001-- 1245 wells
2002-- 911 wells
2003-- 893 wells

Because of the decline in onshore oil production and the rise in the
deepwater Gulf of Mexico production, the percentage of US oil produced from
the Gulf of Mexico has risen from 13.2% in 1991 to 29.7 % in 2002. It will
be 40% in a few years.

Natural gas production from the Gulf Shelf has fallen from 4.76 Trillion
cubic feet (TCF) in 1997 to 3.6 TCF in 2002.

These are not good numbers. The only good thing to come out of this was that
I took the opportunity to check with Mr. Oynes a Houston Chronicle report
from last May which I reported here. The newspaper said that he has
reported in a speech back then that the deep water Gulf would begin its
decline in 2005. He denied this, saying he felt the deep water production
would go up for a while longer than that. My opinion is that unless the
drilling rate improves, it won't be that much longer.
Received on Sun Jan 25 17:32:08 2004

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