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Page added on August 9, 2017

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No-Name US Oil Driller Gets Shot at World’s Biggest Reserves

Production

Nicolas Maduro was in his element, flanked by an enormous Venezuelan flag, beneath a portrait of Simon Bolivar on horseback, in front of a statue of Hugo Chavez, praising foreign companies wise enough to make deals with what he called “our beloved PDVSA.”

That would be Petroleos de Venezuela SA, the state-owned oil giant struggling to pay its bills and reverse a production decline that sent output to a 14-year low in June. But there’s nothing to worry about, Maduro said, because of the “huge investments” coming in from around the world.

A Horizontal Well Drillers rig

Photographer: David Wethe/Bloomberg

Appearing on stage at Miraflores Palace with Maduro was his Exhibit A, Todd Swanson, chief executive officer at a company called Horizontal Well Drillers LLC. To applause from the audience, Swanson shook the president’s hand and talked about his love of the Latin American country. For an oil man, this isn’t entirely unreasonable. Venezuela may be rocked by political chaos, short on food and medicine and internationally condemned as an authoritarian state, but its proven crude reserves are larger than even Saudi Arabia’s.

The nationally televised performance last month was curious, though, renewing questions about the Maduro regime’s $3.2 billion plan to boost output by 250,000 barrels a day within 30 months, a tall order in the face of rising debt and crumbling infrastructure. The fact that little and little-known Horizontal is one of three main contractors hired to make the ambitious goal underscores the magnitude of the challenge — and the desperate situation at PDVSA.

“It’s very unorthodox to see a small player like Horizontal Well Drillers pop up on a project this size,” said Luke Lemoine, an energy analyst at Capital One Securities Inc.

Nicolas Maduro

Photographer: Carlos Becerra/Bloomberg

Not only is Horizontal an unfamiliar player in the industry, few people seem to know much about it in its own hometown of Purcell, Oklahoma, population 6,442. The head of the local chamber of commerce, who works just down the road, said she’s never heard of the rig contractor. A city councilman who owns an exploration and production company said he wasn’t even aware Horizontal’s founder had sold it about four years ago to new owners. Employees of nearby businesses said they rarely interact with the driller’s workers.

Kevin Montgomery, a mortician at a crematorium across the street, said he was surprised to hear any outfit in town was taking a job in Venezuela. “That’s not good,” he said. “Their economy is horrible.”

It is indeed an interesting time to dive into the Venezuelan oil business, especially considering the threat of expanded U.S. sanctions now that Maduro has convened a constituent assembly to rewrite the constitution and boost his hold on power.

“It’s just screaming of country risk,” said J. David Anderson, an energy analyst at Barclays. “Every company that we witnessed going into Venezuela over the last 10 years has come out bloodied and dragging themselves out by the fingernails. Even the big guys have struggled in recent years. It is a perilous market, to say the least”

Officials at PDVSA declined to comment for this story. Swanson, 42, who has an MBA from Stanford University, didn’t respond to phone calls. He has worked previously as an analyst, including for Dan Loeb’s activist hedge fund Third Point LLC. He served for about 11 months with Loeb on the board of Massey Energy Co. when Third Point was agitating for change at the coal company in 2006 and 2007.

The company’s public relations firm, Schnake Turnbo Frank in Tulsa, declined to comment on the driller’s operations in Venezuela or anywhere else. Closely held, Horizonal has its headquarters in Purcell, where its property includes garages, warehouses and a lot crowded with vehicles and equipment, including a Land Rover, pickup trucks, semi-trailers, forklifts and drilling rigs, some covered by a film of Oklahoma’s red dirt.

Horizontal Well Drillers

Photographer: David Wethe/Bloomberg

In its bid to boost output, PDVSA awarded the contracts late last year to explore three areas in the Orinoco Belt, requiring, in an unusual move, that bidders agree to provide their own initial financing. One tender went to a hometown engineering firm, Caracas-based Y&V Group, and another to Schlumberger Ltd., the world’s largest oil-services company; it has operated in Venezuela for decades and is sticking it out there, though on a smaller scale than in the past, despite being paid recently in promissory notes.

“Schlumberger on the deal makes perfect sense with their balance sheet and history in the country,” Capital One’s Lemoine said.

For its part, Horizontal will be supported by minority partners in the project including Chevron Corp. that have deep experience in the country. Chevron is among the foreign companies that have just pulled some employees out of Venezuela because of deteriorating conditions. Chevron declined to comment for this story. It’s unclear what role it’ll play in working with Horizontal, which has signed on to drill about 200 wells. It’s also not known how many companies bid for the contract that Horizontal won.

At the ceremony at Miraflores Palace, celebrating a new memorandum of agreement between Horizontal and PDVSA to do more work together, Swanson told Maduro he was looking forward to helping Venezuela “become one of the largest oil producers in the world.” Maduro congratulated Swanson for “a win-win association.” He also asked the CEO to share something with President Donald Trump.

“Tell Trump that one day I hope to give him my hand and talk face to face, with respect,” Maduro said. “I want good relations with Trump.”

Whether Swanson has any ties to Trump is unclear, but if he delivered the message, it fell on deaf ears. Weeks later, the Trump administration leveled sanctions against Maduro himself, freezing his assets in the U.S.

bloomberg



16 Comments on "No-Name US Oil Driller Gets Shot at World’s Biggest Reserves"

  1. dave thompson on Wed, 9th Aug 2017 8:36 am 

    Bloomberg telling us all, once again about the great “new’ investment opportunities that abound, across the oil patch.

  2. Duncan Idaho on Wed, 9th Aug 2017 8:59 am 

    Actually, just another hit piece on Venezuela.
    I would keep an eye on Chinese and Goldman Sachs investments in the country.
    They are making some significant bets.

  3. bobinget on Wed, 9th Aug 2017 9:23 am 

    That is exactly what I’ve been saying Duncan.
    This week will mark the last large crude shipment
    to the US, wether permitting.

    Most of the “big oil” companies, drillers, have pulled out of Venezuela for two good reasons.

    1) fearful wives and mothers, what good are dead
    sons and husbands?
    2) Government has no cash to pay bills.

  4. bobinget on Wed, 9th Aug 2017 9:33 am 

    Summary of Weekly Petroleum Data for the Week Ending August 4, 2017

    U.S. crude oil refinery inputs averaged 17.6 million barrels per day during the week
    ending August 4, 2017, 166,000 barrels per day more than the previous week’s average.
    Refineries operated at 96.3% of their operable capacity last week. Gasoline production
    increased slightly last week, averaging 10.3 million barrels per day. Distillate fuel
    production increased last week, averaging 5.3 million barrels per day.

    U.S. crude oil imports averaged about 7.8 million barrels per day last week, down by
    491,000 barrels per day from the previous week.

    Over the last four weeks, crude oil
    imports averaged over 8.0 million barrels per day, 4.9% below the same four-week period
    last year. Total motor gasoline imports (including both finished gasoline and gasoline
    blending components) last week averaged 1.1 million barrels per day. Distillate fuel
    imports averaged 41,000 barrels per day last week.
    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
    Reserve) decreased by 6.5 million barrels from the previous week. At 475.4 million
    barrels, U.S. crude oil inventories are in the upper half of the average range for this time
    of year.

    Total motor gasoline inventories increased by 3.4 million barrels last week, and
    are in the upper half of the average range. Both finished gasoline inventories and
    blending components inventories increased last week. Distillate fuel inventories
    decreased by 1.7 million barrels last week but are in the upper half of the average range
    for this time of year. Propane/propylene inventories remained unchanged last week and
    are in the lower half of the average range. Total commercial petroleum inventories
    decreased by 4.6 million barrels last week.

    Total products supplied over the last four-week period averaged over 21.2 million barrels
    per day, up by 2.3% from the same period last year. Over the last four weeks, motor
    gasoline product supplied averaged about 9.8 million barrels per day, down by 0.1% from
    the same period last year. Distillate fuel product supplied averaged over 4.3 million
    barrels per day over the last four weeks, up by 13.3% from the same period last year. Jet
    fuel product supplied is up 1.9% compared to the same four-week period last year

  5. bobinget on Wed, 9th Aug 2017 9:46 am 

    We will have negative Wednesday reports going forward, IMO, as missing Venezuelan oil makes itself known. Gasoline, jet fuel doing nicely.

    We really NEED seven million Barrels daily imported, if not, we get a massive headache.
    Given how much crude, finished product we are exporting, storage numbers are not as a reliable
    gauge as is consumption, miles driven etc.

    Note: double digit diesel (HO13.3%) this, IMO is an excellent economic indicator. Look at fertilizers.

    By this time next year electric cars will begin to
    carve a larger bite out of gasoline. Watch distillates and jet fuel instead.

  6. rockman on Wed, 9th Aug 2017 11:27 am 

    So not much is known about that little company or the guy running it. If the Rockman got the contract he could easily put together a world class group of engineers and state of the art equipment. There’s a lot of both sitting around idle. Then if the trade with Venezuela is reasonable and the kickbacks to Maduro et al aren’t excessive he could find some greedy drilling fund to put the money up. And the Rockman would make a big pile of equity that he would monetize early on before El Presidente (current or future) nationalized the industry…again. LOL.

    Seriously. Such set ups have been done many time before all around the world…including in the US. The Rockman consulted for such a company in the 80’s. And coincidentally that company began was a small OK publicly traded company (which no one in Texas ever heard of) that went bankrupt and was bought for $1. A very cheap way of becoming a US public company with virtually no initial scrutiny by the SEC. And yes: that company eventually was liquidated in bankruptcy after years of the president living well on his “expense account”. An expense account he approved. But he didn’t show favoritism: he scamed his brother and nephew who was named after him. BTW the president of that company was recently charged with stock fraud by the SEC for running a similar scam in Colombia.

    Seriously…what’s old is new again. LOL.

  7. Kenz300 on Wed, 9th Aug 2017 11:46 am 

    Follow the money. Greed and corruption go together.

  8. bobinget on Wed, 9th Aug 2017 11:54 am 

    Wars aren’t as oil intensive as was the case 16 years ago when we invaded Afghanistan.

    Three things for which we need to be grateful.
    1) N. Korea is a distraction for pro AND con Trumpers’. DJT must be muzzled before he kills us all. He has not the slightest idea what to do.

    2) Iran is safe, for now. It’s doubtful DJT will take on both.

    3) DJT thinks he’s taken good care of Venezuela.
    He hasn’t. That situation will work out fine for Russia and China, for the US? Not at all..
    Like tourists scaling a volcano to get a better view from the rim, we are in for a face full of the ‘hottest ash’ “the world has ever seen”.

    I still don’t get it. How can ‘the smartest men in the room’ miss this brew? Maybe we, Goldman S and I, are smoking something?

  9. MASTERMIND on Wed, 9th Aug 2017 1:56 pm 

    Conventional Oil Peaked in 2006 –IEA

    http://imgur.com/a/hccu9

    New Oil discoveries by scientists have been declining since 1965 and last year was the lowest in history -IEA

    http://imgur.com/a/W60yn

    International Energy Agency Chief warns of world oil shortages by 2020 as discoveries fall to record lows

    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO believes world oil shortage coming despite U.S. shale boom

    http://www.foxbusiness.com/markets/2017/07/10/saudi-aramco-ceo-believes-oil-shortage-coming-despite-u-s-shale-boom.html

    UAE warns of world oil shortages ahead by 2020 due to industry spending cuts

    http://www.arabianindustry.com/oil-gas/news/2016/nov/6/more-spending-cuts-as-uae-predicts-oil-shortages-5531344/

    HSBC Global Bank warns 80% of the worlds conventional fields are declining and world oil shortages by 2020

    https://www.research.hsbc.com/R/24/vzchQwb

    UBS Global Bank warns of industry slowdown and world Oil Shortages by 2020

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12136886/Oil-slowdown-to-trigger-supply-crisis-by-2020-warns-bank.html

    German Army (leaked) Peak Oil study warns world oil shortages would collapse the global economy and democracies

    http://www.spiegel.de/international/germany/peak-oil-and-the-german-government-military-study-warns-of-a-potentially-drastic-oil-crisis-a-715138.html

    The Oil Age may come to an end for a shortage of oil. -Saudi Oil Minister Sheikh Yamani

  10. Plantagenet on Wed, 9th Aug 2017 2:08 pm 

    Venezuela nationalized and seized all foreign oil infrastructure under Chavez. Who would be stupid enough to ship in oil drilling rigs, pumps pipes etc. now just so Madurai could seize them all over again?

    Cheers!

  11. rockman on Wed, 9th Aug 2017 4:34 pm 

    “Who would be stupid enough…?” Anyone greedy enough to listen to a good sales pitch. The prez I described above was excellent at weaving a great tail. Here’s the details of how he hooked the greedy with the help of others. Think about it: by just telling a good story he pumped the stock of a worthless company to more then $600 million by drilling DRY HOLES in Columbia. From 2014:

    “The SEC today announced charges against a Houston-based oil-and-gas exploration and production company and its CEO for making fraudulent claims about the company’s oil reserves.

    An SEC enforcement investigation found that Houston American Energy Corp. and John F. Terwilliger fraudulently claimed that a Colombian exploration concession in which Houston American only owned a fractional interest held between 1 billion and 4 billion barrels of oil reserves, and that the reserves were worth more than $100 per share to Houston American’s investors. The estimates lacked any reasonable basis and were falsely attributed to the concession’s operator, whose actual estimates were much lower.

    “Terwilliger and Houston American misled investors by wildly exaggerating the extent and nature of their oil and gas holdings,” said the SEC’s Enforcement Division. “They used a cadre of third parties to publicize and bolster their misleading claims.” The SEC’s order instituting administrative proceedings also charges stock promoter Kevin T. McKnight and his firm Undiscovered Equities Inc., who were paid by Houston American to disseminate its fraudulent claims about the oil-and-gas concession project in Colombia.

    The SEC’s Enforcement Division alleges that the fraudulent conduct by Terwilliger and Houston American occurred during several months in late 2009 and early 2010. During this time, Houston American raised approximately $13 million in a public offering and saw its stock price increase from less than $5 per share to more than $20 per share. Contrary to the lofty estimates made by Terwilliger and Houston American, the company participated in drilling multiple unsuccessful wells on the concession from 2010 to 2012, and withdrew from the operation in early 2013 without recovering any oil. The company’s stock price eventually cratered under the weight of the fraud. Houston American now trades for approximately 40 cents per share, which represents a market capitalization loss of $600 million since it peaked in April 2010.”

    And not likely the prez will spend a day in jail. When I consulted for his company 30 years ago he bragged about having his passport and traveling money in a get-away bag ready to go. And he was putting monies into foreign accounts even back then. He may have socked away $millions the SEC will never be able to touch.

    Here’s one of my favorite stories from those days. Working in the back office I noticed the office was oddly quiet. Walked to the front past the empty offices of half a dozen employees including the prez. The receptionist (also a “consultant” since the prez didn’t like to pay employment taxes) told me the lawyer called and told them a federal marshal with warrents might be showing up soon. So all the employees bailed. The marshal never showed.

    My engineer and I hung around trying to get our vendors and landowners paid. I was eventually cut loose when the prez discovered how I helped a landowner get his royalty paid. Difficult to hide when I got my own lawyer instead of letting the company’s lawyer represent me. LOL.

  12. bobinget on Wed, 9th Aug 2017 5:54 pm 

    Russian oil company Rosneft has invested more money in Venezuela’s state-owned firm PDVSA, pledging to continue working in the country’s energy sector despite the worsening political and economic crisis.

    A Citgo refinery in Romeoville, Illinois © John GressWashington raising red flag over Russian control of US energy supplier
    The Venezuelan firm received $1.02 billion from Rosneft as an advance payment for future crude supplies, according to the statement released by the Russian company earlier this week.

    Earlier this month, Rosneft CEO Igor Sechin said the company was going to increase cooperation with Venezuela.

    “The country’s reserves of hydrocarbons are the world’s largest. From this perspective, any energy corporation must seek to work there,” he said.

    Rosneft’s pre-payments to PDVSA have amounted to nearly six billion dollars. This includes principal of $5.7 billion and interest of $245 million, Rosneft said, as quoted by Reuters.

    “We expect the final repayment to be made in oil and oil product deliveries, which are ongoing strictly according to a schedule which we cannot provide to you. We expect full repayment before the end of 2019. No new pre-payments are planned,” the company told investors on a conference call.

    Venezuela is Rosneft’s biggest source of crude outside Russia. The company holds a 49.9 percent stake in the US-based oil firm Citgo owned by Venezuela’s PDVSA. The stake was offered as collateral when PDVSA obtained another loan of $1.5 billion from the Russian company last year.

  13. Cloggie on Wed, 9th Aug 2017 6:03 pm 

    “We expect the final repayment to be made in oil and oil product deliveries, which are ongoing strictly according to a schedule which we cannot provide to you. We expect full repayment before the end of 2019. No new pre-payments are planned

    Russia can sell this oil anywhere in Eurasia through its extensive pipeline network.

    A Citgo refinery in Romeoville, Illinois © John GressWashington raising red flag over Russian control of US energy supplier

    Or even to the Americans.

  14. Anonymouse on Wed, 9th Aug 2017 9:35 pm 

    plantyard is a moron, who does not even understand how its own corrupt, captured* gov’t operates, let alone a foreign land plantytard could not locate on a map.

    *by its ‘own’ oil corporations no less.

    For Narrativeman. Do you have any evidence President Maduro personally receives kickbacks from oil sub-contractors that operate within his nation?

  15. rockman on Thu, 10th Aug 2017 12:29 am 

    “A Citgo refinery in Romeoville, Illinois © John GressWashington raising red flag over Russian control of US energy supplier”. As explained in detail earlier the entire 4% of Citco refinery capacity could disappear tomorrow and the US consumer wouldn’t notice. OTOH the 25% of US refinery out put that is currently being exported does have a significant impact on the consumers. BTW are all of the Citgo refinery products already being exported? I imagine GressWashington hasn’t even thought to ask that question. BTW how many Citgo gas stations in your town?

    The Citgo refineries represent $billions in investment. They can’t be moved out of the country. If they stop refining (100% of the products which are already free to be exported) those $billions become $zero.

  16. rockman on Thu, 10th Aug 2017 12:33 am 

    A – “Do you have any evidence President Maduro personally receives kickbacks from oil sub-contractors that operate within his nation?” Do you have any doubt that he does? If you do I have a bridge in Brooklyn for sale you might be interested in. LOL.

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