Wednesday, December 19, 2012

Sell at $115 bbl; Produce at $15 bbl; Profit of $100 bbl

...certain oil fields in places like Iraq and Saudi are still pulling oil up at a cost of about $10 per barrel.

This $100 oil malarkey is a function of an explicit cartel (OPEC), dangerously unregulated commodity oil trading in global investment banks and the background noise of those who think oil will soon be extinct.
Oil production costs vary wildly from one region of the world to another -- even from one adjacent oil field to another adjacent oil field. Profits for some producers are much higher than for others. Let's look at some comparisons of production costs:

The first table comes from the USEIA.

Costs for Producing Crude Oil and Natural Gas, 20072009
2009 Dollars per Barrel of Oil Equivalent1
Lifting CostsFinding CostsTotal Upstream Costs
United States  Average$12.18$21.58$33.76
All Other Countries Average$9.95$15.13$25.08
    Middle East$9.89$6.99$16.88
    Central & South America$6.21$20.43$26.64
15,618 cubic feet of natural gas equivalent to one barrel.
Last reviewed: November 1, 2012

The next table comes from the IEA:

Oilfields                   Estimated Production
 /source                        Costs ($ 2008)
 Mideast/N.Africa oilfields         6 -  28
 Other conventional oilfields       6 -  39
 CO2 enhanced oil recovery         30 -  80
 Deep/ultra-deep-water oilfields   32 -  65
 Enhanced oil recovery             32 -  82
 Arctic oilfields                  32 - 100
 Heavy oil/bitumen                 32 -  68
 Oil shales                        52 - 113
 Gas to liquids                    38 - 113
 Coal to liquids                   60 - 113
 Source: International Energy Agency World Energy Outlook 2008

Bakken oil & gas producer GEOI:

Net Oil and Gas Production, Average Price and Average Production Cost
The net quantities of oil and gas produced and sold by us for each of the three fiscal years ended December 31, the average sales price per unit sold and the average production cost per unit are presented below.

  Year Ended December 31,
  2008  2007  2006
Oil Production (MBbls)
  743  392  184
Gas Production (MMcf)
  2,962  1,648  577
Total Production (MBOE)*
  1,236  667  280
Average sales price (net of hedging):
Oil per Bbl
  $82.42  $67.20  $54.61
Gas per Mcf
  $8.12  $6.19  $6.83
  $68.96  $54.74  $49.92
Production cost per BOE**
  $27.46  $23.67  $20.37

Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (1 BOE).
Notice that as the price of oil goes up, the cost of production per barrel also goes up -- due to automatically increased tax rates. Also notice that the cost of production given by GEOI is much lower than the $60 to $80 per barrel prodution cost usually quoted for tight oil.

This graphic is a big picture comparison of different regions and countries. Better technologies for tight oil, oil sands, and other unconventional oil production, are pushing production costs down -- while prices seem to be stuck on an undulating plateau.

Clearly the Persian Gulf countries are sitting in the best seats in terms of watching the oil money flow in. Russia is not doing too badly either -- if not for corruption in high places, stripping away oil profits for wasteful personal consumption by cronies.

The best North American oil producers are enjoying a profitable season, and are happy for it. Even if oil prices drop to $60 a barrel, many of the North American producers will be able to keep producing long enough to wait out the slump, and catch the ride back up.

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Blogger said...

The problem with the chart is to understand how 2007 US$ correlate with US$ 2013.
This is needed to correlate the current costs with the current prices.

This economic crisis could reduce oil consumption enough to drive the price down to 2007's 60 US$. This would destabilize many oil producer countries, because without oil revenues they are not able to bribe their populations to stay submitted.

In particular, if oil revenues go down, Saudi Arabia will have political turmoils and Egypt will become a political nightmare because it will be totally unable to pay for food imports (it is already on the edge).

2:15 PM  
Blogger al fin said...

Good points.

The value of the US$ is rapidly declining under Obama.

And as you say, the issue of fiscal breakeven is just as important to oil - dependent states as is the issue of production costs.

For this posting, I chose to focus exclusively on production costs in order to get a clearer picture of that issue in isolation.

But as you say, for governments which depend upon oil revenues to pacify their populations -- such as the OPEC states, Russia, etc. -- fiscal breakeven cannot be ignored.

1:06 PM  

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