Replies to post #49 on The Rising Influence of Rising Affluence

[old man]

Dew-- The oil forecasts I've seen have demand around 125 to 130 mmbopd and supply around 95mmbopd by year 2030. Even if those numbers are off some, the demand number appears reasonable given economic growth rates in China/India, USA and to lesser extent other countries. While its reasonable to expect the US won't be nearly so dependent on oil to fuel its transportation needs 20 years from now, it's difficult to see a significant reduction in need for oil during the next decade simply because of the 15 years or so to replace the existing inventory of cars, trucks, busses,locomotives, planes even if we stated today which we can't. Alternative fuels such as NG, diesel from coal, electric cars, etc., are still years away from making significant inroads and probably even longer than that in Asia. With Prudhoe Bay, Mexico's Cantatrell (sp), and North Sea in serious decline and questions re S Arabia's Ghawar's reserves it seems clear that major new discoveries will come largely from deep sea and Arctic exploration where production costs will be high.
Assuming demand forces exert continuing pressure on supply, oil prices will rise. Oil services, exploration platforms, floating storage platforms and tankers are needed obviously for deep sea exploration, production, storage and transport.

I suspect that the US will increase its imports derived from Canadian tar sands. Columbia also has some fairly large reserves of bitumen but production costs currently are still high. Petrobank is experimenting with its THAI process which potentially will reduce extraction costs while increasing the amount recoverable. Nevertheless, most experts think we will be very dependent on deep sea and Arctic exploration for new supply. I can't personally see why cos that provide the needed expertise and products won't continue to enjoy the business and profits they've historically had. I suspect also that their stock prices did well during last year's oil price rise. I know day rates went way up and stayed up until recently.
John

[DewDiligence]

Charlie et al: Comments on this SLB blog?

http://dealbook.blogs.nytimes.com/2010/02/23/excess-skepticism-on-schlumberger

›Excess Skepticism on Schlumberger?

February 23, 2010, 1:55 am

Schlumberger’s shareholders have been in a state since news leaked last week of the company’s bid for Smith International, its rival in the oilfield services sector. Skeptical investors have since stripped more than $5 billion from the value of Schlumberger, the industry leader, a powerful slap in the face of its chief, Andrew F. Gould. Such punishment appears excessive, Reuters Breakingviews says.

True, Mr. Gould has not negotiated a bargain for Smith. By Schlumberger’s own account, cost savings will be just $320 million a year by 2012. Taxed and capitalized, these would be worth about $2 billion to shareholders. So, by offering a $3 billion premium, at $45.84 a share, Schlumberger looks to be destroying around $1 billion of value.

But Schlumberger’s big tumble suggests that investors fear Smith may prove an even bigger liability, Breakingviews says. The deal may indeed tie up precious management time as the antitrust process grinds forward. Baker Hughes is still in a holding pattern while regulators vet the purchase of BJ Services, which it announced in August.

Apart from these anxieties, however, the deal has some powerful strategic logic on its side, Breakingviews says. It is hard to see a financial exploding gun in Smith’s balance sheet. The company’s $1.2 billion of debt is small potatoes for Schlumberger, which has cash and short-term investments of $4.6 billion.

Moreover, the absence of a significant drill maker, Smith’s forte, in Schlumberger’s product line is becoming an embarrassing omission. Recent oil finds are forcing companies to drill deeper for oil — more than six miles down in the case of BP’s giant find in the Gulf of Mexico. Complex shale gas operations are demanding ever more sophisticated drilling technology.

As extracting oil and gas becomes tougher, making sure that tools work perfectly together is becoming crucial. Mr. Gould has his sights set on a new generation of drilling technology. Meanwhile, giant state-run oil companies are increasingly demanding a full-service option.

Even if the deal fails to deliver a boost to revenue once the companies combine, it is hard to see how it can hurt them. Shareholders’ lack of faith in Schlumberger’s management is unfair, Reuters Breakingviews says. Mr. Gould has his work cut out proving investors wrong.‹