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To: Smokin' Joe
Lift costs (the $1.50/bbl is Saudi) are just the cost of getting the oil out once the rest of this is in place.

But the link doesn't say lift costs. It says production costs. In every other industry, production costs includes a lot more than merely transporting the product out the door; it includes all the costs that came before that time. So wouldn't the oil production costs include all of them -- explortation, drilling, lift, etc.?

124 posted on 09/06/2005 7:20:09 AM PDT by Dave Olson
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To: Dave Olson
No, exploration is exploration, drilling is drilling, production is production. Different departments, different budgets, in most oil companies.

Production departments are concerned with taking an existing well (new or not) and getting the oil out. Production costs include well stimulation, surface equipment, pumpjack and production equipment maintenance, workover costs, electical power, and personnel solely concerned with those functions.

Drilling costs are separate.

That distinction carries right into job titles and duties: Drilling engineer vs production engineer, for example.

You could only with difficulty be able to take the fixed (once it is done) cost of drilling and spread it over the total production of a well on an ongoing basis as a cost per barrel and report as an average because it would be constantly changing. That would not reflect the cost of producing a barrel of oil today. A good well reaches payout (preliminary, drilling, and completion costs paid off), and continues to produce oil which translates to profit if the price of oil exceeds the lift (or production costs).

During the last price crunch (late '90s) a lot of stripper wells were plugged because the lift costs exceeded the price per bbl. The only guy I knew who had steady work was a Canadian who spent a year gearing down Canadian pump jacks to cut losses.

Your cost to lift (or produce) a barrel of oil is something you can readily calculate as an ongoing expense on a per barrel basis--it is the operating cost of the well.

One of the reasons I like this industry is the fact that it is like no other, save in the respect that at the end of the year, the books better be in the black or the stockholders won't be happy campers.

127 posted on 09/06/2005 9:50:27 AM PDT by Smokin' Joe (If you are not part of the solution, you are part of the problem.)
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