It's been an interesting ride these last few weeks. Here is what I have learned.
1. Colombia is a great place to drill for oil and gas. The Llanos Basin has awesome reserve potential and infrastructure. Royalty rates range from 8% and linearly increase to 25% once you are making over 600,000 barrels of oil per day. 33% corporate tax rate and easy repatriation. Ex PDVESA folks and Canadians are getting rich there, and US independent players largely absent.
2. China making inroads in Argentina oil and gas. Why would they work in a shitty fiscal environment? I think they have learned from brother Hugo. Play to the despot's weaknesses. They loaned billions to him secured by future delivery of hydrocarbons, then sent in field techs and engineers to "help" them operate the fields as they get nationalized. Do you think China actually expects to get repaid on their debt? Hell no. They want the hydrocarbon. Guess what? No taxes or takings on debt repayment. Fiscal regime be damned. Are they thinking the Kirchener tag team has similar traits in Argentina?
3. Real potential winner in the Russia/US/China triangle is India. They emerge as the easy folks to do business with. Too much business between Russia and Iran and China and Iran to teeth up any UN sanctions. UN oversight is trumped if countries are doing billions of dollars of business with one another.
4. I heard a great talk from an unnamed GOM jack up operator. They are no longer going to be a GOM jack up operator. They are going to be a Global jack up operator. Previously happy with the GOM, they perceive the political risk of drilling in the US GOM as much to high today to expose their whole business. When asked when, in the global history of the oilpatch, an accident was met with such a devastating response as the moratorium, the answer was "Never. Which is why the US GOM is now considered politically unstable". Rational view from someone exposing 40-60k per day these days.
5. Frac costs have tripled in the last few months. God Damn It!
6. Spammers take over when I am away.
7. The latest Unconventional Heat Index shows the Eagle Ford still in the lead, with Niobrara and Granite Wash following closely behind.
The Chinese are all over Africa--make that places in Africa that have natural resources China needs. It is trying to lock up supplies to fuel its growth. With some trillion in foreign exchange reserves and a current account surplus, why would a little thing like shitty fiscal environment discourage China? Look for many more Chinese restaurants next time you are there. And for China to start investing in Colombia's infrastructure....
Posted by: Alysha | October 28, 2010 at 07:16 PM
China is making big moves in Algeria, Chad, Central African Republic, and Sudan. They don't care about economic recovery, they are just after a steady supply.
Posted by: ThatGuy | October 29, 2010 at 09:23 AM
I agree with you both. China's efforts are nothing if not rational. The exception I took to the bankers in the crowd was that China isn't merely a financial investor. Loans to governments unable to pay, setting up to coopt infrastructure to enforce payment, insuring idealogically-driven regimes are wholly unpalatable to western banking help from a risk perspective borrows from the US/CIA playbook post WWII and into the 1960's along with inscrutable French and Russian cold war and beyond efforts. Loan to own!
Posted by: open choke | October 29, 2010 at 09:58 AM
"Real potential winner in the Russia/US/China triangle is India. They emerge as the easy folks to do business with."?
Only so long as you have the right partner and the right "fixer"....
About 8 months ago, most of the western majors pulled out for these reasons..
Posted by: Royal Enfield | October 29, 2010 at 10:14 AM