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1

Saturday, November 1st 2008, 7:17am

What is the marginal cost of drilling oil?

The subject of my post is a question that many will ask and are asking always. So, then what do we do?
We find a source that can give the information and you get information on various figures of costs sorted by companies.

We start using this info. But we must see the background of how authentic this information is. How did the information source company obtain this information? Did they get it from the oil company's records? Maybe some... but definitely not all. There are many companies, I think who would say that this information is classified. To solve this doubt, wemust examine if th source company can disclose the information. That will be too much work.

What is the solution? All the sources of information that you have may have the above problem and the consequential ambiguty. But, we need something to work on and take decisions. So, we use the available information, sometimes with more than one pinch of salt.

Let us consider we have very authentic information with no ambiguity. Some companies do have a smaller cost per barrel probably averaged over many of the varying costs in the various oilfields.

I read last week that a general value for the marginal cost per barrel is $72. If the price falls below this, there will be fewer new investments into new drillings except by those companies that feel that the oil prices will rise soon.

However, wouldn't this drop in deeper exploration cause a shortage in oil, as the easily-avaialable oil is depleting and the only way to get more oil is to drill deeper which is of course costlier?

2

Sunday, December 7th 2008, 2:43am

Oil prices and possible recession in oil rich countries?

The oil prices have fallen to below $44. This is a 47 month low.

This will cause major problems in countries which depend on oil money to run their economies/ambitious programmes. Russia needs oil money for their military. Iran needs money for their research and to gain power in the middle East. Venezuela needs money for their ambitions. Probably the building boom in UAE is also fuelled by the oil money.

If the oil prices remain this low or go lower, there will be dramatic changes.

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