The time it takes for oil exploration and drilling to pay off can vary significantly depending on several factors, including the location of the well, the depth of the reservoir, the quality of the oil or gas discovered, and prevailing market conditions. Here are some key factors that influence the payback period for oil exploration and drilling projects:

1. Reservoir Characteristics: The geological characteristics of the reservoir, such as its depth, size, and porosity, play a crucial role. In general, shallow and easily accessible reservoirs tend to have shorter payback periods compared to deep, remote, or unconventional reservoirs.
2. Production Rate: The rate at which oil or gas can be extracted from the well affects the payback period. Wells with higher production rates can generate revenue more quickly.
3. Oil or Gas Price: Oil and gas prices can be highly volatile, and they have a significant impact on the payback period. High oil and gas prices can lead to faster payoffs, while lower prices can prolong the time it takes to recoup investment costs.
4. Production Costs: The cost of drilling, production, and ongoing operational expenses also influences the payback period. Lower production costs can lead to faster payoffs.
5. Technological Advances: Advances in drilling technology and techniques can improve efficiency and reduce costs, potentially shortening the payback period.
6. Regulatory and Environmental Factors: Regulatory approvals, compliance with environmental regulations, and land access issues can affect the timeline for drilling and production.
7. Exploration Success: The success of exploration efforts is a critical factor. Dry holes (wells that do not yield commercial quantities of oil or gas) can result in substantial financial losses, while successful discoveries can lead to quicker payoffs.
8. Financing and Capital Structure: The availability of financing, interest rates, and the capital structure of the project can impact the payback period. High levels of debt may require faster payoffs to meet financial obligations.
9. Market Demand: Market demand for oil and gas products can influence the price and demand for production. Economic conditions and geopolitical factors also play a role.

In some cases, oil and gas drilling projects with favorable conditions and high-quality reservoirs can achieve payback in a relatively short time, often within a few years. However, more challenging projects, such as deepwater drilling or unconventional resource extraction (e.g., shale oil and gas), may take several years or even a decade or more to pay off. Some projects may have extended payback periods due to the need for substantial upfront investment and long-term development.

It’s important to note that the energy industry is subject to various risks and uncertainties, including price fluctuations and regulatory changes, which can make predicting payback periods challenging. Companies involved in oil exploration and drilling carefully evaluate these factors when making investment decisions and assessing the financial viability of their projects.

Exxon Mobil Changes Course in Acquisition of Pioneer Natural Resources

In a recent report from Reuters, Exxon Mobil has decided to buy existing oil reserves instead of drilling in a $60 billion dollar bid to acquire Pioneer Natural Resources, Inc.

The deal would bring Exxon 1.33 million barrels of oil and gas per day, according to the report.”There is incredible political pressure against drilling new holes in the ground to find oil and gas,” said Bill Smead, chief investment officer at Smead Capital Management, which manages $5.2 billion in funds, 25% of which are devoted to oil and gas.

“So it makes complete sense to buy a smaller company. Pioneer has fantastic reserves,” he said.

Exxon Mobil has now formally agreed to buy Pioneer Natural Resources in an all-stock deal valued at $59.5 billion, which could secure a decade of low cost production, according to another report from Reuters. 

About Pioneer Natural Resources

Pioneer Natural Resources (NYSE: PXD) is an American oil and gas exploration company headquartered in Irving, TX. It has a strong presence in the oil-rich Permian Basin in West Texas.

Pioneer specializes in shale oil production, and has been known for its commitment to innovation and technology in the oil and gas industry, utilizing advanced drilling and production techniques to optimize resource extraction.

Shares of Exxon (XOM) fell from $110 to $105 on the announcement. Shares of Pioneer gapped up from $213 to $240 on the news.

Daily Chart of PXD (ThinkorSwim)

The post Drill or Buy? Exxon Mobil Takes NewApproach to Delivering Oil and Gas to Market appeared first on Global Investment Daily.

It’s a script that has played out with numerous commodities including potash, graphite, cobalt, rare earths, vanadium, and even marijuana (though not strictly a commodity).

And it’s now playing out with helium, the second-most abundant element in the Universe behind only hydrogen, yet also one of the rarest elements on our planet.

Helium’s scarcity and value stems from the fact that it’s an inert gas that does readily react with other elements or much of it generated by earth’s natural processes. It’s also 7x lighter than air and readily leaks into space and eventually gets torn away by solar winds.

Each year, our planet generates about 3,000 tons of helium through radioactive decay deep in the bowels of the earth. Unfortunately, the vast majority leaks off into space, and the little that  is trapped in the atmosphere comes nowhere close to meeting our global demand of 32,000 tons of helium per year (about 6.2 billion cubic feet measured at 70°F and under earth’s normal atmosphere). 

Indeed, the majority of our helium reserves are found in ancient shale formations. Helium is, therefore, regarded as a finite, non-renewable resource.

Yet, many investors have been sleeping on an unraveling helium boom, thanks to

explosive growth in the semiconductor and healthcare industries as well as space and quantum computing.

This rare gas is endowed with unique qualities that make it indispensable in many key applications including space exploration, rocketry, high-level scientific applications, in the medical industry for MRI scanners, fiber optics, electronics, telecommunications, superconductivity, underwater breathing, welding, cryogenic shielding, leak detection, and in lifting balloons. 

At a melting point of -261.1°C (-429°F), helium has the lowest melting point of any element, meaning there’s no substitute for the gas where ultra-low temperatures are required such as superconductors. For instance, the fastest train ever built, the SC MagLev, capable of speeds of more than 600 km per hour, uses liquid helium to cool the superconducting material, niobium‐titanium alloy, to 452 degrees Fahrenheit below zero.

According to ResearchAndMarkets, the global helium market is projected to reach US$18.2B in 2025, growing at a CAGR of 11.2% during the period 2021 to 2025 mainly driven by robust medical and consumer electronics demand. About 30% of the world’s helium supply goes into MRI scanners while another 20% goes into the manufacture of hard disks and semiconductors.

Meanwhile, Big Tech companies such as Google, Facebook, Amazon, and Netflix are heavy users of helium in their massive data centers.

With demand constantly outstripping supply and the federal government no longer freely selling helium, prices have skyrocketed, hitting $35 per liter in 2019, more than double an average of $14.60 per liter they commanded three years ago.

Helium Uses

Source: Helium One

No more helium from the Fed

The biggest chink in the helium supply chain is the fact that a large chunk of the supply is in the hands of the U.S. federal government.

Back in 1925 when helium-based airships seemed like they would become vital to national defense, the U.S. government created the Federal Helium Reserve (FHR) out of a giant, abandoned salt mine located 12 miles northwest of Amarillo, Texas. Over several decades, FHR collected as much helium as it could and essentially became the world’s strategic helium reserve supplying ~40% of the world’s needs.

Unfortunately, the FHR eventually ran into debt trouble to the tune of billions of dollars thanks to its habit of selling helium at well below market prices. In 1996, the U.S. government passed laws mandating FHR to sell off its reserves and close in 2021 in an effort to recoup its debts.

The Bureau of Land Management (BLM) has outlined the process and timeline by which the FHR will dispose of its remaining helium and helium assets.  BLM, which now manages the reserve, managed to sell off most of the stored helium to all users, with the remaining 3 billion cubic feet (84 million cubic meters) by 2018 restricted for sale to only federal users, including universities that use helium for federally sponsored research. BLM held its last Crude Helium Auction in Amarillo, Texas, in 2019 with the price rising 135%, from $119/Mcf in 2018 to $280/Mcf in 2019. 

The sale of crude helium to private industry has been discontinued and the remaining stockpile is earmarked for Federal users only.

The sale deadline has since then been extended to 30 September 2022, but  privatization likely won’t be completed until at least 2023.

There are a ton of stocks to play in this space, including giant Exxon (NYSE:XOM), which produces about 25% of the world’s helium supply at its plant in LaBarge, Wyoming. Regeneron (NASDAQ:REGN) is also poised to become a major helium player, with South Africa’s first-ever liquid helium processing technology. And plenty of small-caps form some potentially juicy new entrants to this space. 

This is one to watch. It’s not about balloons anymore. 

The post Abundant Yet Rare: The Juicy Helium Paradox appeared first on Global Investment Daily.