G

On the topic of Brazil, I think we have to recall that most of the drilling that Petrobras completed for their deepwater was to prove out the resource, not to pump it. Of course, that project is toast, now, at 42 bbl. When PBR got their first drilling invoice it was in the billions, and the PBR CEO said “you know, 125 dollar oil is a fair price.”

What goes off line first are stripper wells–these are the Ma n' Pa wells that dot the landscape globally and only produce 10-20 bbls a day but they are myriad and completely uneconomic as oil comes back to current levels. I think a research house in London is saying that a ton of production in the aggregate could be lost from these–sounds oddball, I know, but I think they are right.

The main concern is as follows: OPEC controls all the cheap conventional oil. non-OPEC controls all the expensive, unconventional, hard to get oil.

You also have to consider the psychological factor: oil going back to 80.00 in Q1 2009 is simply not going to persuade Shell or PetroCanada to out their tar sand expansion plans back on. We already saw how cautious the industry has become this decade, even as oil rose.

OPEC tried to do the world a favor by acting when oil got to 100.00. But dislocations in all assets globally including currencies were a very powerful force.

G

G

On the topic of Brazil, I think we have to recall that most of the drilling that Petrobras completed for their deepwater was to prove out the resource, not to pump it. Of course, that project is toast, now, at 42 bbl. When PBR got their first drilling invoice it was in the billions, and the PBR CEO said “you know, 125 dollar oil is a fair price.”

What goes off line first are stripper wells–these are the Ma n' Pa wells that dot the landscape globally and only produce 10-20 bbls a day but they are myriad and completely uneconomic as oil comes back to current levels. I think a research house in London is saying that a ton of production in the aggregate could be lost from these–sounds oddball, I know, but I think they are right.

The main concern is as follows: OPEC controls all the cheap conventional oil. non-OPEC controls all the expensive, unconventional, hard to get oil.

You also have to consider the psychological factor: oil going back to 80.00 in Q1 2009 is simply not going to persuade Shell or PetroCanada to out their tar sand expansion plans back on. We already saw how cautious the industry has become this decade, even as oil rose.

OPEC tried to do the world a favor by acting when oil got to 100.00. But dislocations in all assets globally including currencies were a very powerful force.

G

Cheers,
Stuart
(@stuartma)