Some oil and gas producers and service companies have calculated that oil price cycles or energy fundamentals have a periodicity of 38-45 months.

Inertia's grip

Some oil and gas producers and service companies have calculated that oil price cycles or energy fundamentals have a periodicity of 38-45 months. With knowledge of market position in the cycle, companies should be able to optimize growth and avoid serious penalties associated with being out of sync - in theory.

Because E & P projects span at least one oil price cycle, non-OPEC oil and gas producers cope with price excursions by basing exploration and production investments on an oil price low enough ($13-15/bbl, for example) to prevent serious discontinuities between producer costs and low oil prices. Today, producers continue to use these low price assumptions, and that is why few projects are coming out of the blocks. Under normal circumstances, the following would encourage producers to re-assess these low price assumptions:

  • Price mean: Oil price levels and price periods calculated over a 15-year period are producing a mean point slightly under $20/bbl (WTI), almost $2 higher than a similar calculation made five years ago.
  • Price floor: Mideast OPEC producers are making it abundantly clear they need a floor oil price of $22-25/bbl (WTI) or they cannot guarantee political and economic tranquility - and many global financial institutions studying the situation agree.
  • Price ceiling: A broad US gasoline price of $2/gal (and corresponding levels in Europe) appears to be the ceiling trigger point for political intervention and consumption curtailment. This makes $28-30/bbl (WTI) the constraining price, assuming feedstock costs are passed through to retail.

By now, non-OPEC producers might have been encouraged to shift price assumptions upward, but for the inability of OPEC moderates to constrain two crucial pressures within their ranks: agitation to push up oil prices beyond the consumption curtailment point (Iran et al); tendency to raise crude production export volumes when prices weaken (Nigeria et al). As a result, non-OPEC producers have little choice but to ignore supply and demand trends and stick to low oil price assumptions. Further, non-OPEC producers efforts to replace production or deploy capital have not been adequately rewarded in terms of share prices.

So, don't expect major oil producers to boost E & P activities very much in the coming months or years. However negatively this might be viewed by petroleum service and contracting companies, or oil and gas consumers, this inertia, coupled with a similar disposition among OPEC producers, could keep oil prices healthy for years to come.

Deepwater staging

One hundred-fifty-mile trips to and from deepwater rigs and floaters off Louisiana and Texas are becoming so frequent for helicopters and supply vessels that the industry may have to seriously consider the development of a deepwater transfer port. The proposal was made some years ago when producers first began working off the shelf and offshore distances pushed beyond the 100-mile mark.

Today, many deepwater offshore trips exceed 150 miles. Newer leased tracts are just north of the center of the Gulf of Mexico. Similar commutes exist in other areas of the world, but none have the traffic density of the Gulf of Mexico. Without such an airstrip, helipads on floating and tensioned offshore units will continue to grow larger to accommodate long-range helicopters and major re-fueling operations.

The proposed airstrip would consist of a series of wide and long semisubmersible vessels, ballasted down to form a continuous deck. The strip would be large enough to allow flight operations for two-engine propeller aircraft with 30-plus passengers and light equipment in moderate weather conditions.

On the airstrip, a fleet of helicopters on standby would fly short legs to destination rigs and floaters. Quarters or hotels would be available aboard for maintenance and specialty crews, as well as workers in transit. Drill bits, BHA tools, completion systems, ROVs, and time-sensitive replacement parts could be warehoused aboard the floating airstrip.

Although the entire structure could be dynamically positioned, mooring it with a disconnectable central turret would be considerably less expensive. Thrusters would allow the entire unit to weathervane to minimize runway needed. Minimal superstructure would reduce sail. When tropical storms approach, crews would clear the flight deck and allow the airstrip to ride out the event or disconnect and maintain a semi-drifting mode.

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