I have heard recent thoughts from U.S. government sources that $40 oil would solve many problems. One immediate concern is to defund Russia in the war in Ukraine. Lower oil prices would make it more challenging to purchase drones and missiles from Iran and South Korea.
Second, a similar argument that lower oil prices would impede Iran in sponsoring world terror. It makes sense in that the Houthis of Yemen have just used Iranian-funded missiles to sink two oil tankers. Third, it would lower inflation in almost every commodity, while drastically improving industrialization and job creation worldwide. Perhaps. Oil companies have heard this song before and will survive. Exploration always increases reserves, which should increase cash flow. More supply, lower price. Lower price, less incentive? NO. History tells us that in oil, cash remains king. And the king must be satisfied regardless.
Clearly, as one sees news on exploration, a reasonable conclusion would be that capital is chasing, and will continue to chase, opportunities: See Onshore news, https://worldoil.com/topics/onshore/exploration; See Offshore news, https://worldoil.com/topics/offshore/exploration. New exploration is always a great weather forecast for the service industry’s revenues and potential technology development.
The big “however” is the observation that market conditions that drive exploration rarely result in immediate improvements to technology, efficiency or reserves. The leaning of the teepee is always towards the development of existing fields. So much so, that a step-out well from an existing offshore platform is regularly called an exploration well. Especially if the accountants get to book expenses. That means that today’s innovative geology, reservoir engineering, and safety were funded from the last cycle of hydrocarbon expansion. Future cash flow is not in the ground but, as always, in the ability to procure capital at risk. Those who have the gold tend to make the rules.
What if you are in the most famous gold- and diamond-producing country in the world, yet lack confidence that large volumes of producible fossil fuel reserves exist anywhere within your reach? Well, begin with the gold. Build a facility for the “miners” and supply gold pans, so to speak. That is exactly what some in South Africa have created and are attempting to perpetuate. Look at this group of entrepreneurs with a great port, plenty of labor, and internal persistence https://www.saoga.org.za/web/directory.
The South African Oil and Gas Alliance has two major drawbacks. One, they lack an oil major as a sponsor. Second, they [by law] are too focused on tribal DEI. Yet their leadership operates out of Cape Town, and none are tribal. U.S. President Donald Trump was correct in chiding the SA leadership on their race-based, land ownership policies that too often end in violence, displacement and murder. I have been to SA many times and concur with the fresh U.S. position. Remember Rhodesia and Mugabe.
I once worked on offshore diamond exploration in the Orange River delta, funded by a U.S. drilling company. Seems De Beers got the message and reintroduced buyouts rather than previous shootouts. Similarly, the future of oil and gas in SA, and possibly all of Africa, is not with the risk-takers, who think oil south of Nigeria may be abundant, but with those accountable to shareholders as to why they invest in countries with violence and ideological struggles. Sounds like California and Ukraine.
As the EIA chart in Fig. 1 suggests, the problem in Africa is not just available hydrocarbons, but the lack of competitive industries that can use natural gas to modernize and build a sustainable middle class, regardless of race or tribe. SA has not recovered from the Covid lockdown and will not, if it is dependent on cash handouts from world governments or bigger oil. That cash rarely gets to feed the people. Let’s visit history.
Large oil companies learned painfully that large capital investments made directly to government officials anywhere attracts powerful forces that seek to take, not give. Recall OPEC and the 7 Sisters: Anglo-Persian Oil Company (later BP), Gulf Oil, Royal Dutch Shell, Standard Oil of California, Standard Oil of New Jersey, Standard Oil of New York, and Texaco. How did that work for Gulf and others? Don’t cry too much since all did find buyers or mergers. However, the families of select government leaders became amazingly rich, while labor is still imported to Arabia from Pakistan. Recall other nationalizations in Brazil, Libya, Vietnam, Indonesia, Russia, China, and indirectly through taxation, all North Sea suppliers. The central reason that the U.S. onshore is alive is that the capitalist concept of private oil ownership is, so far, still open to the risk-takers, Fig. 2. WO
WHTEXAS@AOL.COM / WILLIAM (BILL) HEAD is a technologist with over 40 years of experience in U.S. and international exploration.