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United States Oil ETF Message Board

  • ext4r ext4r Nov 14, 2012 7:14 PM Flag

    $15 cash cost to produce barrel of oil

    Deutsche Bank analysts Lucas Herrmann, Elaine Dunphy, and Adam Sieminski said cash operating costs are very low. On average the cash cost of extracting a barrel of oil in the mature and higher-cost, non-OPEC markets of Russia, UK, Norway, and Alaska is about $15/bbl—greatly below the current oil price. Only in the Canadian oil sands do average cash costs approach $28/bbl

    In many places the cash cost is even less than $10 per barrel

    A $15 cash cost means that oil prices could drop to $20 and they would not only pay all their operating costs, but could generate $5 in excess cash for every barrel they pump.

    The vast majority of producers would continue to pump oil even if prices fell to $20 per barrel, because $20 pays ALL the costs plus makes $5 in extra cash for every barrel pumped.

    They couldn't afford to stop pumping.

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    • I'm sure it's quite cheap if you don't do any drilling and no exploration.
      Trouble is, without any new production, declines happen very fast.
      And then because you curtailed drilling and exploration all of a sudden you have huge declines in production and supply shortages and the prospects of years before new supply could be brought on line.
      That would be fine if the goal is to see industrial activity grind to a halt over the coming decade.
      We have already seen rig counts go down in the Bakken whenever prices dip below $80. Sounds like you advocate return to pre-industrial revolution lifestyles (which would also require a huge downward adjustment in population).

      • 1 Reply to lizahuang54321
      • I'd "LIKE" to advocate 50 cent per gallon gasoline and amazing jobs for everyone and a carefree oil guzzling life...... But its not possible anymore.

        Our economy is based on wasting huge amounts of oil each day on frivolous crap. But that frivolous oil-guzzling economy only functions well if oil prices are cheap. Expensive oil makes us reduce our frivolity and that snuffs out the economy and kills jobs and kills demand.

        With killed demand, oil prices can crash VERY low... and those low oil prices then help to stimulate the economy and we start another cycle toward higher oil prices.

        I'm afraid that we are stuck cycling between $120 oil (which kills the economy and kills oil demand), down to $30 oil (which will invigorate the economy and pick up demand), then the strengthening economy will increase demand and help send prices back up towards $120, then a crash back down to $30.

        When oil crashes toward $30, they'll keep pumping plenty because most can be pumped for under $15.... but there won't be much exploration,.

        But when oil rises toward $120ish again, then they'll overdo the exploration and create an oversupply

        We're now heading down towards the $30 - $50 range for a while.

    • yea right, oil sands is roughly 70/bb to extract. That is why they immediately curtail oil sands as soon as the price falls below 78/bb. This happened like 2 years ago.

      • 1 Reply to johnson4730
      • Ummm, I showed you the analysts' figures of $28 (CASH costs) to produce oil from tar sands.

        Perhaps you don't understand the meaning of "Cash Cost". How you compute cash cost is you total the CASH expenditures for the quarter on your production operation, then you divide that by the number of barrels you produce. With $28 cash cost, if oil prices fell to $40, you're still generating excess cash. That's not bad to be able to spend $28 and get $40 back.

        When oil prices drop, it's because demand is dropping, and with lower demand it can make sense to curtail some production. It can make sense to curtail your most expensive production first, even if it's still generating cash, if you can afford to do so.

 
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