Byron King

Recently, I had a long talk with Ali Moshiri, President of Chevron Africa and Latin America Exploration and Production Company. Mr. Moshiri has been working for Chevron for over 30 years. He’s one busy man, whose responsibilities begin in the southern waters of the Gulf of Mexico and extend to the cold reaches of the southern Atlantic Ocean.

In our talk, Mr. Moshiri and I looked at the future of offshore oil and gas exploration and development. Here’s part of what we discussed…

Byron W. King: Mr. Moshiri, you run a division of Chevron that includes Africa and Latin America. How much oil and gas do you pull out of the ground every day?

Ali Moshiri: For Africa and Latin America, on a gross basis, Chevron is producing somewhere around 840,000 barrels per day.

BWK: That’s about 1% of all the oil that the world uses every day, at 85 million barrels per day. Can you say some more about what’s happening in the areas with which you deal?

AM: (My area is ) the Atlantic Basin… If you look down at the southern part of the Americas and Africa, people are ignoring the contribution it’s making worldwide.

The basins in this area are different. It’s not necessarily like the Middle East, that they are huge fields. But there are many accumulations. On the aggregate, they’re significant. Not only to the Chevron portfolio, but overall to the supply of oil to the market.

If you look at this area, they’ll always be a net exporter. They’ll always produce more than they can consume. My personal view is that if they continue their level of economic growth, that they assume is going to be above global, they’ll still be an exporter.

It creates an environment for industry to include them as part of the energy equation. The barrels can move to other locations where they don’t have that balance.

BWK: Are you only looking for oil? What’s the larger hydrocarbon picture?

AM: The (Atlantic) basins have similarity, but at the same time the basins have both oil and gas. It’s not just oil. At the moment, the focus has been tremendously towards oil. I believe that both basins in West Africa as well as in Latin America have tremendous potential for gas for the future. But because of lack of infrastructure, they haven’t got to the point similar to Asia Pacific of the Middle East yet.

But if you look ahead 15 years, they’ll get to the point of contributing natural gas, through LNG (liquefied natural gas) or pipeline… That’s the next phase. Today it’s very much focused on the oil side.

BWK: In the Middle East, you’re looking at a mature, 60-70 year old concept of exploration. Also, culturally, you’ve got similarities of climate, ethnicity to some extent, religion too. Not that everybody’s the same. But by comparison, if you’re moving from the Caribbean Basin to West Africa to Brazil to Angola, you’re going to see a lot of different people and different governments and different cultures that you’re going to have to work with. Can you comment?

AM: Absolutely. If you look at the Chevron operations, we deal with ten different countries. Three of them are in OPEC. Two of them are observers in OPEC. Therefore five of them are very much within the framework of the OPEC community. That shows that each of them have (their) oil policy and different view compared to when you look at places like the US, Australia, UK and Europe.

For that matter, you have to deal with each country separately. You have to understand, first of all, the geology, the technical aspects of it. And also the policies. The policies vary.

I’m not saying it’s good or bad, whether it’s in the hands of the government or the private sector. That’s what we deal with in this area. Not only do we have to worry about the technical side, but also about the fiscal, commercial aspects of it as well.

BWK: Can you comment about what you’ve seen over the past 20 years, with the rise of the national oil companies (NOCs) in these regions, and how you’ve had to adapt from the way you used to do business to the way you have to do business now in the NOC environment?

AM: The reality is that with the truly conventional aspects of oil and gas, the technology is there. The know-how is there. Whether or not we have it, or a service company has it. It’s there. So the view of the NOC is that they have more than one option on just the conventional (development).

For example, (what) if you discover an oil field on land, say light oil? Then building it, developing it, putting it into the market is relatively conventional. So what we would focus on is increasing the recovery factor. We focus on getting more out of the ground.

The next phase is what I’d say depends on technology. You get into deepwater. The technology is different. The incremental cost is significant. Room for efficiency becomes a greater part of how we develop things. Yes, everybody (says that they) can develop deepwater. But how do you manage expensive wells that you’ve got to drill? How do you test the basin? How do you commit to the investment? Those are significant.

As you see in the market today, it’s almost becoming like there are a lot of people who can explore. But there are not a lot of people who can develop deep water.

BWK: I had a chance to visit a Chevron operation in the Gulf of Mexico (GOM) in March. Chevron had the Transocean vessel, Discoverer Inspiration, drilling in over 6,700 feet of water, about 200 miles off the Louisiana coastline. The target depth was over 30,000 feet. It was quite an operation.

AM: I’m glad you took a visit to some of our operations. (You should see) some of the other remote places like offshore, deepwater off Nigeria. You can see how those places are highly technically driven.

And for as much as we’ve gone so far into developing these (deepwater) fields, the technology is not there to work over the wells when there are problems. The technology is not there to create efficiency for working over some of these wells. For example, if a well goes off production in West Africa, and it’s in the swamp, or in Block Zero, off Angola, in shallow water, we move a rig in and we know how to work over the well.

But if a well goes off production and it comes to a work-over, if it’s in deepwater, in say 8,000 feet of water, then you almost have to spend as much to work over a well as you spent to drill the well. Therefore, we are looking for the technology, and expanding our expertise, how to go back and do some of that work. To work those kinds of wells over.

BWK: Can you describe how Chevron’s relationships are changing over time, with the NOCs?

AM: Yes, our relationship with the NOCs is changing, moving to a different direction. The next phase goes several years down the road and gets into the non-conventional hydrocarbons. Like tight sands and shale gas. I always use the US as the base, where we started.

I’ve been in this business 32 years with Chevron. I remember when 500 feet of water was deep water. But now 500 feet of water is a conventional development, or work-over, with high recovery factor. And I think we need to expand that one all the way.

In some of the other regions, especially my region, we are not to that point yet. Again, it’s because some of these basins have not matured yet.

BWK: Can you elaborate on that concept of maturity? How are things different between, say the US and further south in the Atlantic Basin?

AM: (The US) Gulf of Mexico shelf is mature. But if you look at it south, from Mexico down to Argentina, or West Africa or sub Sahara or East Africa, we are still at the first phase of understanding the basins, understanding the potential, developing the technology around it, and being able to transport it.

Some of the discoveries (that) some of the companies have, in sub Sahara Africa, the transportation is going to be the issue. That region is going through a different phase. The transportation is about one phase behind where we are in the US.

According to Chevron’s Mr. Moshiri, there’s great potential for future energy development in the Atlantic Basin. The hydrocarbon resource is there – both oil and natural gas – and development is at an early stage.

The future will see more exploration and development, moving from oil into gas. The local markets will doubtless expand, but there’s still quite a bit available for export. But to accomplish this, the transportation infrastructure needs to expand. In short, there’s much left to accomplish in an immense swath of the world.

The Future Challenge of Energy Development

There are great opportunities for future exploration and energy development in Latin America and Africa. This will require trillions of dollars of capital over many years. That, plus world-class technology, superb and skilled people, as well as close coordination between developers and the national host governments.

Chevron, the subject of this article, is one of the world’s best independent oil companies. From its roots in the California oil patch of more than a century past, Chevron has a solid record of successful exploration and development. Chevron has great financial strength, and a deep pool of technical competence. Chevron’s success – certainly in deepwater development – is built upon its highly skilled and talented people such as Mr. Moshiri and the many members of his extensive team.

That said, there are many other companies working on deepwater oil exploration and development projects across the world. They range from very big to not very big, from independent to nationally-owned and operated.

Until we meet again,

Byron W. King
for The Daily Reckoning

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Byron King

Byron King is the editor of Outstanding Investments, Byron King's Military-Tech Alert, and Real Wealth Trader. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.