Saturday, July 12, 2008

Oil Capital Redux

When I graduated from college some years ago, a couple of my friends took jobs with Schlumberger, the international oil services firm. What they wanted young engineers for was to train them in operating their oil exploration equipment. They would typically set you up with one of their specialized trucks which had as much high tech equipment as you could pack onto it, then send you off to far flung places to find the next mbillion dollar hole in the ground. They would typically have the best stories when you ever caught up with them.

So I am driving on I79 this weekend and come up behind a truck that looks to me like a cross between a MAC truck, a street sweeping machine on steroids and something from Transformers. I couldn't figure what it was. Passing it I saw it actually said it was a Schlumberger truck as you might find tooling across some desert somewhere. I have put a fair number of miles driving across Pennsylvania over the decades and I have never noticed a Schlumberger truck in the state. I know the crazy price of oil, natgas and coal all are causing a re-evaluation of Appalachain energy reserves, but the thing that I couldn't quite figure is that given the long history of Pennsylvania oil, could there really be anything left to analyze. The truck itself must represent a pretty valuable and scare commodity in the oil crazy world these days.... but it was tooling through Pennsylvania.

Maybe it was passing through to go look for some Canadian Oil Shale? Maybe I just never noticed these trucks before? Maybe it was some other type of Shlumberger truck that did something entirely unrelated to the oil industry? It could have been designed to drill for water for all I really know about geo-engineering these days, but would be shocked if you need that much capital to find water in Western Pennsylvania and points north. Given a dowser I suspect I could find underground water if I had to.

I was willing to accept any of those possibilities or something else innocuous, but then came across this article from just the other day via Steve Sjuggerud's newsletter: Why Pennsylvania Land Prices are Skyrocketing. That real estate speculation that never got to us.... incoming?


Blogger Bram Reichbaum said...

I wonder if the mining guys (and I understand there are a lot of THOSE) are buying up rights with somewhat of the intention of exploiting that resource after coal has been extrapolated?

Could our ancient mountains (they are more ancient than the Rockies, are they not) be sitting on bubbles of oil?

I hope so. The excuse to make There Will Be Blood references is priceless.

Sunday, July 13, 2008 12:24:00 AM  
Anonymous Johnny G. said...

A local geotechnical expert was telling me at a cocktail party that less than 30% of the known oil and gas reserves in Western PA have been pulled out of the ground. Also, there is apparently an underground shale formation that begins just west of the airport and spreads east/northeastward toward Indiana County that shows great promise, but is relatively unexplored. Finally, based on rock formations it is believed that a huge, yet again unexplored, deposit of natural gas lies beneath the Allegheny National Forest.

The problem is that the cost of getting that last 70% or exploring that shale formation or drilling the national forest has been too costly either financially or politically when other sources of energy were so cheap and/or more easily accessible.

Supply constraints and $145/barrel oil, I suppose, change the thinking as to what constitutes cheap and accessible.

Monday, July 14, 2008 11:31:00 AM  
Blogger C. Briem said...

I thought the price point for oil shale was 30-50/bbl, but do not pay that close attention. Wasn't that long ago that oil was below that level, or it was not believed long term price would be maintained above that level. Granted its not the $2/bbl or whatever it is in the Saudi desert... but it still is a lot of money on the table at prices over $100/bbl.

Monday, July 14, 2008 1:57:00 PM  
Anonymous MH said...

I don't know the numbers on this, but I'm guessing that when you have a huge fixed investment that won't show a dime of income for 10 years or so, you don't base your estimated profit on only the prior six months of price data.

Monday, July 14, 2008 9:33:00 PM  

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