No. of Recommendations: 25
Or there’s this:
I spent my career as a reservoir engineer in the oil and gas industry, which means I have an unfortunate occupational defect. When somebody announces that the United States now has “control” of 65 BILLION barrels of Venezuelan oil, I’m supposed to get excited. Instead, I start asking annoying questions. Where are the reservoir data? What’s the production history? What’s the recovery factor? What’s the development plan? What’s the CAPEX? What’s the OPEX? What’s the decline rate? And my personal favorite, when does this magnificent beast actually start making money? I know, I know, I’m no fun at press conferences.
Because 65 billion barrels in the ground are not 65 billion barrels sitting in a giant underground swimming pool waiting for Donald Trump to arrive with the world’s longest dipstick, which according to Stormy is more like 🤏.
Venezuela does have enormous oil reserves. The inconvenient part is that much of the Orinoco resource is extra-heavy crude, commonly around 8 to 10 degrees API. This isn’t a nice light crude enthusiastically racing up the wellbore yelling, “Freedom!” Think warm molasses with a union contract. Fortunately, some of the reservoirs have excellent permeability. Operators can drill long horizontal or highly deviated wells and use artificial lift, including progressive-cavity pumps, to bring the stuff to the surface. And once you’ve accomplished that, congratulations! You’ve successfully moved your problem several thousand feet closer to daylight.
Now the oil generally needs diluent, lighter hydrocarbons blended with that extra-heavy crude so it can actually move through pipelines without resembling asphalt trying to migrate south for the winter. Then you need gathering systems, separators, pumps, electricity, pipelines, processing facilities, storage and terminals. Some production needs massive upgrading facilities to turn that extra-heavy crude into something considerably more refinery-friendly. So the actual process is reservoir to horizontal well to artificial lift to surface facilities to diluent and blending to gathering system to pipeline to upgrader or export terminal and finally to a refinery capable of handling heavy crude.
Apparently “65 BILLION BARRELS!” looked better on the bumper sticker. And this is why reservoir engineers are such terrible guests at political victory parties. We keep pointing out that having oil and producing oil are not the same thing. You can have a magnificent reservoir and a beautiful well and still produce exactly squat if you don’t have electricity, artificial lift, diluent, pipelines, processing capacity or someplace to put the oil. The good news is there are quicker barrels available. Work over existing wells. Restore shut-in production. Replace pumps. Repair facilities. Debottleneck gathering systems. Secure diluent. Drill some infill wells. Competent operators can probably add several hundred thousand barrels per day over the next few years. Chevron already provides a useful lesson in reality. They’ve operated there for decades, know the reservoirs, have wells, facilities and employees already in place, and even their expansion plans are measured in years.
Apparently the reservoirs haven’t been informed that we’re working on election-cycle time. Then comes the magical $100 billion investment. One hundred billion dollars sounds like an almost unimaginable amount of money until you’ve worked in the oil business. Then your reaction is more along the lines of, “Okay, what part are we building first?” Seventeen fields. Eight potential greenfield developments. Drilling rigs. Workover rigs. Wells. Artificial lift. Roads. Power. Gathering systems. Pipelines. Pumps. Compressors. Processing plants. Diluent. Storage. Terminals. Upgraders. Maintenance. Thousands of workers and an oilfield service industry capable of keeping everything functioning. By the time everyone finishes introducing themselves, somebody has probably spent the first billion.
And unlike a political announcement, an oil field requires maintenance after opening day. Pumps fail. Wells decline. Wells sand up. Equipment corrodes. Flowlines leak. Compressors break. Facilities need maintenance and new wells have to replace declining production. Decline curves are terribly inconsiderate that way. They don’t watch television, vote in elections or give a damn who is president. Several hundred thousand additional barrels per day over the next two to four years? Entirely believable. But remember other wells are simultaneously declining. A sustainable million-plus incremental barrels per day? Now we’re probably talking five to ten years and tens of billions of dollars, potentially well north of $100 billion as development expands. Getting Venezuela anywhere near the 3-million-plus barrels per day it once produced?
Congratulations. You haven’t acquired an oil field. You’ve adopted an oil industry. Then there’s the wonderful promise that all this will happen “at no cost to the American taxpayer.” Excellent! Apparently Exxon, Chevron and ConocoPhillips have become charitable organizations and their shareholders have graciously volunteered tens of billions of dollars because they heard Venezuela has oil and thought it sounded like a fun weekend project. Oil companies don’t invest billions because somebody announces there are billions of barrels underground. We already know where enormous quantities of oil are located. They invest where engineers and economists believe those barrels can be developed at a risk-adjusted return better than the other places competing for that same capital.
Venezuela has one additional charming investment consideration. After you’ve spent several billion dollars building everything, you’d really prefer the government not decide someday that your contract would look better shredded. Call us sentimental. Then there’s that fascinating word “ownership.” Venezuela says Venezuela owns its petroleum resources. Trump says the United States has secured majority “control” of 65 billion barrels. My reservoir-engineer response is fairly simple. Those aren’t the same damn thing. Show me the contracts.
Geology remains stubbornly resistant to political theater. You can announce ownership. You can announce control. You can announce 65 billion barrels. You can announce the greatest oil deal since dinosaurs made the catastrophically poor decision to become a hydrocarbon source rock. But you cannot announce production. Reservoirs don’t read Truth Social. You can’t threaten a decline curve, negotiate with viscosity or tell 8-degree API crude that it has two weeks to start behaving like West Texas Intermediate. Oil comes out of the ground because geologists, reservoir engineers, drilling engineers, production engineers, operators and thousands of oilfield workers spend years and staggering amounts of money figuring out how to economically get it from the reservoir to a sales meter.
Sixty-five billion barrels makes one hell of a headline. Rate, recovery, viscosity, deliverability, decline curves, CAPEX, OPEX and NPV make an oil field. Everything else is just somebody standing over a very large reservoir yelling, “Drill, baby, drill!” The reservoir, as usual, remains unimpressed. Those of us who actually spent our careers doing this know the difference. Now you all know a little more too.
~ Kat Romenesko
