When the price of oil goes down so does the cost of exploration, drilling and producing.
That is a difficult concept to grasp if supply and demand is left out of the equation.
I’m getting less for my product, but the price of exploration, drilling and producing would appear to remain somewhat constant due to labor costs. Drilling rigs could be idle and so more available to drill thus oversupply and reduced demand. Producing, less available crude equals competition for available crude. Not sure I’m looking at it correctly.
When the price of oil goes down so does the cost of exploration, drilling and producing.
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Very true. I read this week that offshore rigs had dropped 30% in price with the demand pressure taken off.
Those marginal wells, get left on the planning board for future. The fabrication and pipe manufacturing gets less orders, quits working so much overtime and the competition starts looking more at cost than delivery time.
Consulting, design and construction folk start working less overtime; average prices to the folks that hire us go down.
Saudi has some old production that is cheap to produce. But they have been spending significant dollars trying to keep their production rates up. It is the marginal cost that matters.
They spent $17-billion (significant overruns from estimates) on the Manifa project for 900,000 barrels a day.
Offshore in shallow waters, they built 27 man-made drilling islands, 13 platforms, and 15 onshore drillsites. The project includes 41 km of causeways and 3 km of bridges designed to maintain natural water flow in Manifa Bay. They have worked for over half a century trying to figure out a way to economically produce this lower value, high sulfur heavy oil with high metal content.
For the curious, I included a bunch of links for info on this project.
https://www.saudiaramcoworld.com/issue/196006/manifa-oil.field.under.the.sea.htm
http://www.theoildrum.com/node/9056
http://www.oilandgasnewsonline.com/Article/33782/No_plans_to_raise_output_capacity
file:///C:/Users/Todd%20Hackney/Downloads/Jan-De-Nul_Manifa-Field-Causeway.pdf