[DantesPeak]

Fine explanation rockdoc123.

BTW, Conoco admits that it is replacing 100% reserves excluding acquisitions. The 100% is also using NG to replace oil.

Since major companies have, for practical purposes, much more money than needed for available projects, and if the best they can do is hold steady when there are no market constraints, then being at or about the 100% replacement level means we are at or near peak energy - and past peak oil - at least for the majors.

[rockdoc123]

So, will these new SEC rules prevent fraud in the energy industry? No - or so says the history of mankind. From what I have learned from you and others regarding energy reserves, there is considerable "discretion" as to what constitutes P1, P2, P3 reserves that people, who wanted to mislead, could play with and mislead investors - Shell downgrades for example.
Since there is discretion in what constitutes P1,2 or 3 reserves, new or old SEC rules, there's always room for fraud. Independent auditors don't prevent this fraud, sometimes they participate in it, again, consider Enron.

Seahorse the important difference now is the third party audit....SEC demands that of 90% of your total reserves booking. In the past oil companies certainly had leeway to interpret the P1 and P2 categories but now with a third party involved the interpretation of SEC regs is very consistent. For instance you would not be able to book P1 unless you had a market and a sales agreement in place, irrespective of how many wells you had in a particular pool. The operative word is "economically recoverable" and the consulting firms that make almost all their money from third party reserve audits stick by the interpretation pretty strictly. The Enron debacle is a horse of another color completely. Could oil companies play the same game from a money based accounting standpoint....of course they could if they could convince their auditors to lay off the same way Enron did. This can't happen in the reserves side of things because the third party reserve auditors are now joint and several liable for the reserves that a company books. And the SEC will not accept those reserves without the third party signature.
Remember that the external auditors for Enron would entreating them to clean up their act and provide further information for sometime.

Also I need to emphasize that some of the reserve downgrades that you see are do solely to some of the rules imposed by SEC. As an example they require that the price for a product on Dec 31st governs your reserve bookings for that year. Many of the heavy oil producers took a swift kick in the cojones in 2004 simply becase the price for heavy crude was at an unusual low on that day. As a consequence much of their reserves showed up as being uneconomical (due to high cost of extraction) and reserves that were booked previously had to be written down. If the following years Dec 31 price is much higher then that company can add those reserves back in. So we need to be careful as to what is actually happening behind the scenes. Often this takes some digging through various press releases and delving into the companies annual report. I believe that a similar issue was at least part of Shell's problem....the oil was physically there in the reservoir it was just that project cost increases and contract delays meant that the reserves could no longer be considered P1 category. Of course that wasn't the only problem.

[SD_Scott]

I was the third generation of my family to work for Phillips. That's one oil company I would trust. It's a very well run company.

[NugBlazer]

I don't understand. If oil is peaking, then why would the powers that be build more refineries? I thought that the reason no new refineries have been built in the last 25 years was because oil is going to peak soon and there wouldn't be any point to new refineries. Yet, here they are building more. Anyone have any idea why? Do they know something we don't?

Saudi, ConocoPhillips sign $6 billion refinery deal Associated Press, May 24th 2006
RIYADH, Saudi Arabia -- State-run Saudi Arabian Oil Co. and ConocoPhillips signed a $6 billion agreement today to build a 400,000 barrel-a-day oil refinery in the kingdom's Red Sea city of Yanbu. Under the deal, the Saudi company also known as Aramco and Houston-based ConocoPhillips may offer up to a 30 percent interest in an initial public offering to Saudi nationals, Aramco said in a statement.

The project, forecast to come online in 2011, follows a similar deal signed Sunday between Aramco and French oil company Total SA for a 400,000 barrel-a-day refinery in the eastern Saudi city of Jubail on the Persian Gulf. Aramco and ConocoPhillips agreed to form a joint-venture company, with each side holding about a 35 percent stake, according to the memorandum of understanding signed by the two companies. The two will each be responsible for marketing half of the refinery's production.

This week's deals between Aramco and the two Western oil majors come amid tight refining capacity worldwide, one of the key reasons for the jump in global crude oil prices, which have doubled from $35 a barrel two years ago to around $70 at present. Many of the plans that have been announced the past year to build new refineries or expand existing ones follow years of reduced investment because of concerns about whether new projects — which take years to build — would be profitable when they begin service.

Many of the proposed projects will not begin production for another three to five years. The Aramco projects are part of a big investment program to refine more Saudi crude oil at home and at refineries built jointly by the company in other countries.

Aramco plans to spend $50 billion over the next five years to boost refining capacity in Saudi Arabia and other parts of the world and boost the kingdom's refining capacity by as much as 60 percent over this period. Aramco is planning to build new refineries or expand existing ones in China, Indonesia, South Korea, and the U.S. http://www.startribune.com/535/story/452126.html

[mekrob]

I thought the whole reasons refineries weren't being built (at least in the US) was because of costs. It takes twice as long and twice as much to be a refinery when compared to expansions of existing refineries, and this isn't including the time it takes to get permits and licenses. I'm not sure about foreign nations, but I thought they were building refineries, I assumed.

But anyway, notice where they are building it. Saudi Arabia. SA is growing very fast and doesn't want to have to export oil but import gasoline and other fuels like how Iran must manage. They'd rather be in control of their own supply so that embargoes wouldn't affect their transportation industry so much, at least not so quickly.

[TexasEx2006]

The expansion assupmtion is correct. People that claim there has not been any new refineries built in the US are looking through the wrong set of glasses.

Currently Motiva is planning a doubling in capacity to become the largest refinery in the US at their Port Arthur facility. Marathon is doubling capacity at their Garyville facility. Every refiner in the US is doing unit expansions, revamps, debottlenecking projects, etc.

It is easier to do an expansion and avoid all of the environmental, "not in my backyard" yahoos, than it is to build a new facility. Permitting and politics kill most efforts.

[mekrob]

I remember one refinery is planning on adding an additional 500 kpd capacity. The largest in the states are right around 500 kpd, so this is pretty much insane in terms of size.

[Zardoz]

The Saudis want to make and sell more finished products. It's more profitable than just selling crude.

[PolestaR]

Saudi Arabias local market for refined hydrocarbons is increasing. They are top 10 in birthrate for the world, so the local demand there is ever increasing.

[pup55]

http://peakoil.com/fortopic6385-0-asc-15.html

We had this conversation about a year ago. This is no doubt the same deal that we noted at the time would cost $12,500 per BOD refining capacity, so this means that the cost of this project inflated about 20% since it was originally proposed a year ago. The current cost is $16,000 per bod.

Valero Corp (VLO) has 3.3 million barrels per day of refinery capacity. The stock price is 58 this morning, and there are 615 million shares outstanding, so the value of Valero's refining capacity is $10,800 per BOD. Plus, they own a pipeline and some gas stations as a bonus.

What this tells you is Valero is still cheap.

[pup55]

Addendum:

Two of VLO's competitors are TSO and HOC.

TSO can refine 56000 bpd, at a current market price of $7900 per BOD, and HOC can refine 101000 BOD, at a price of $22000 per BOD. HOC has recently announced a stock split and dividend increase, so the calculation is a little different for that one.

So, VLO and TSO are still cheap. HOC is expensive.

But, you gotta say to yourself, when this big plant in Saudi gets online, in 2011, what's going to happen to the business for these three companies.

[mekrob]

Or that oil is overpriced which is the case (if you're looking strictly at S/D).

[Zardoz]

Such a shocking thing to hear from an oil company CEO that it made headlines: Oilman Calls for More Fuel Efficiency

"The chief executive of the world's fifth-largest oil company endorsed tougher fuel economy standards for cars and trucks Sunday, underscoring higher gas prices' potential to change the political equation on an issue that has long stalemated the capital."

"Change the political equation", huh? What a sad comment on our sorry state of affairs. Our system is just irreparably busted. We'll never be able to make it actually work.

[Novus]

Oil prices are up 300% in just five years. He knows very well that oil could go up another 300% in less than 5 more five years. They all know we are headed for disaster if something is not done now.

[rockdoc123]

what is often missed by some is that most oil companies would welcome somewhat lower but stable prices. Costs have escalated beyond belief so the margin is not that much better ar $70 than it was at $60. The market is rewarding oil companies as if oil prices were $50 - $55 so from their perspective it might as well be down there.

[Pops]

There is another thread about the meet the press interview where one CEO said that if gas prices were lower the demand would be so high they might not be able to meet it.

Also one predicted that in 20-30 years 60-70% of the worlds primary energy would come from oil.

90% comes from oil now.

I was surprised that no one here seems to watch the Sunday shows – even when 3 oil company CEOs appear.

Oh well, how about that planned WTC demolition?

[Leanan]

Storm halts refining at ConocoPhillips in Hartford

Power outages following last night's storms shut down oil refining at the ConnocoPhillips plant in Hartford. On a normal day, the 10th busiest such plant in the nation refines 306,000 barrels of crude into gasoline, jet fuel, diesel, propane and other products that it ships by pipeline to St. Louis, Chicago and Indianopolis. Not a single barrel was refined there today.
Plant spokeswoman Melissa Erker said the refinery had hired additional contractors to assist AmerenUE in repairing numerous downed lines and other damage to the plant. Erker said she did not know when power would be restored. And she declined to speculate where the shutdown would affect area fuel prices.

This refinery is a major supplier for St. Louis. Local officials are asking people not to panic and rush out to top off the tank. Of course, you know what that means: rush out and top off your tank.

[mattduke]

500K people in that area lost their electricity during the recent storms, so they are unable to run their air conditioners despite the 114 degree temperature (heat index).

[kmann]

Valero is also shutting down its gasoline unit in St. Charles LA. for 20 days for unplanned repairs.
Oil slide ends on US refinery troubles

[Pablo2079]

Sounds like it might be a moot point for St. Louis. No power... no pumps....