RE: The Party's Over

From: Glenn Morton <>
Date: Wed Apr 14 2004 - 22:25:51 EDT

> -----Original Message-----
> From: Al Koop []
> Sent: Wednesday, April 14, 2004 2:25 PM
> I have seen such articles as well. I really don't know what
> to say about them. My gut reaction is that it is not as bad
> as the pessimists claim, but that they do have some
> legitimate concerns. There seem to be a handful of academics
> who spend their careers on these calculations, but the
> assumptions they make are controversial. For example, how
> much of the cost of a railroad or a highway, which are
> required for transportation of some energy supplies, but are
> required for many other
> uses as well, do you figure in as a cost. Some claim that nuclear is
> hardly energetically worthwhile when calculated correctly.

One could argue that we have gone energy negative as an industry in the
US. If you took all the money we spent on oil wells in the US in 1999
and 2000, you could have done better by taking the money and purchasing
oil on the open market.

As to nuclear energy not being worthwhile energetically, They may have
a point and that may explain why it costs so much!


> I have read discussions that say we would not be able to
> replace the old nuclear plants and add new ones fast enough
> to replace todays's fossil fuel generation plants and other
> energy sources-like making hydrogen for fuel cells. I think I
> would agree with that speculation.
> I agree that we will soon be doing projects that would not
> fly today.
> We will soon be drilling in ANWR, when the oil supply drops
> low enough.
> Do you know who knows the results of the one well they
> drilled in ANWR?
> Can anyone tell much from drilling one well in an area what
> the actual reserves might be?

I believe it is Chevron, off the top of my head. I hear that the log is
in a safe in the CEO's office. One could find out the results if one
could find the logging engineer and buy him several beers. While
some have tried to calculate reserves from one well, it is a risky thing
to do BP did that with Thunderhorse--the billion barrel field they
found in the Gulf. Rumor has it that they are now backing away from the
billion barrel figure. The execs, it is rumored didn't count on the
fact that the sand on the structure they drilled would thin at the
edges. When BP did their announcement after 1 well, I was surprised as
were many in the industry

> Here is an article from World Oil probably related to your
> North Sea days that you might be interested in:
> 97&MONTH_YEAR=Apr\
> -2004
> Norway and the UK: Promises and problems.
> Upstream activity on the
> Norwegian and UK Continental Shelves is dwindling. Fields are
> depleting, and platforms are shutting down. Exploration
> decreases, and the discoveries made are of diminishing sizes.
> Few major development projects remain, and investment levels
> are falling.
> After the UK, Norway has matured and shows no signs of
> further growth, due more to politics than geology. Both
> countries need to stimulate increased exploration; develop
> new, smaller fields linked to infrastructure; and increase
> field output. Industry executives claim that Norway's high
> petroleum tax rate is the major reason why oil companies do
> not consider many projects to be sufficiently profitable.
> Although Norway's oil output will decline (unless industry
> incentives improve), natural gas is set to increase further.

Norway's tax structure is attrocious. One can't hardly get profits out
of there, you have a society which makes it impossible to fire lazy
workers, and the entire country goes on a July holiday. I have looked at
Norway and I am not sure that what we call the creaming curve supports
the idea that the lake of opportunity is due mostly to politics.

The UK messed up by giving 40 year leases to the big companies, who have
sat on them, they screwed up by minimizing the infrastructure, so now
any small discoveries are usually a long, long way (uneconomic distance)
from the infrastructure.

> Even if Norway is a maturing province (measured by
> frequencies and sizes of new finds),

That is the creaming curve

there is still good
> potential. New technology and better organization permit
> operators to move into deeper waters and develop smaller
> prospects. The prerequisite, however, is that the government
> must follow up with fiscal and regulatory conditions that
> provide the right incentives and license more acreage.
> Unless investment increases and exploration rebounds
> (followed by field development), reserves will not be
> renewed. In turn, output will gradually decline, negatively
> affecting Oslo's revenues, as well as Europe's degree of
> self-sufficiency. The case for reform in Norway is compelling.
> Norway aims to capture economic rent from large oil fields,
> taxing net income at 78% with six-year depreciation.

I wouldn't like to be taxed at a 78% rate. Would you?

> The extent to which industry will respond remains uncertain,
> as long as officials refuse to do much about taxation. Over
> the past few years, the Norwegian Oil Industry Association,
> OLF, has been busy lobbying for a general reduction in the
> Special Tax on all new prospects, lowering the marginal
> upstream tax rate to 53% from 78%. So far, officials decline
> any general tax cut.

The Norwegians have a huge social net. One really doesn't have to work
if one doesn't want to.

Received on Wed Apr 14 22:26:21 2004

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