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I just read that Exxon has recently discovered oil in a block in Africa, and the test flow rate is approximately 10,000 barrels a day. If the rate for a rig is $200,000/day, then this oil is costing $20/barrel just for the rig. Are test flow rates lower than production flow rates and are the $200,000/day rigs used just for exploration or are they used for production as well (and if so, at a different day rate)?
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When the well is completed the drilling rig picks up and moves to another location....
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Greetings! New to this Board, but have worked in the E&P (exploration and production) side of the bidniss for 14 years.You appear to misapprehend how rig day rates relate to oil prices. Please let me explain, because your inference about dayrates and prices might appear logical to most people, given the information you quote in your Posting. Rig day rates are just that: the price an operator (usually an oil company, but can also be a private individual) pays for the use of a drilling rig, its crew, and ancillary equipment, quoted (for historical reasons based on the hiring rate of a horse-drawn wagon, or "rig," used to transport men and equipment to a drill site) per day. The flow rate from a producing well is greatly influenced by a long list of factors, including the size of the opening the oil flows through, the pressure drop from reservoir to the surface, the amount of oil storage capacity immediately available, to name but a few.Between the two facts mentioned in your Posting is a whole host of factors influencing the actual market price of oil. For a thorough understanding, both historical and technical, of the oil biz, try reading Daniel Yergin's "The Prize: The Epic Quest for Oil, Money, and Power." Most companies will quote in their annual reports their "Finding and Development" costs expressed in dollars per barrel. These include the rental/building costs of rigs, overhead (executives, managers, geoscientists, buildings, and other Company assets), lease purchase prices for land and/or rentals, investments in data collection such as 2-D and 3-D seismic (sound reflections of subsurface rock layers, kinda like ultrasound images), etc. These are all added together and divided by the quantity of oil found in a given year, expressed in barrels (or more usually, millions of barrels). The result should be the actual, full-accounting cost of a barrel of oil. The production test flow rate is merely an indication of how prolific a particular well drilled into a particular oil reservoir might be. It is a very indirect indicator of the size of the reservoir. So, using your example, and assuming the only "F&D" cost is rig dayrate, there's not enough information about the reservoir size, expressed in millions of barrels of oil (MMBO), or the number of days the rig was used (anywhere from 1 week to more than a year, in some cases) to determine the cost per barrel. However, a well that flows 10,000 BOPD might roughly imply a total reservoir size of anywhere from 100-500 MMBO. Therefore, the "F&D" cost of those barrels would range in your example from (let's assume a 30-day drilling schedule for one well) $0.06/bbl to $0.012/bbl. Your example would only be correct if the well took one day to drill, produced only 10,000 barrels, and there were no other associated costs. To further over-answer your question, test flow rates usually (not always) ARE lower than production flow rates. Test flows are done to give management an indication of what the production flow rates might be, and allow for extrapolation of same to calculate a future revenue stream (how much money will come in over a given time period as the oil is produced and sold). $200 K/day rigs are almost exclusively used for exploration, because expensive rigs are used on high-risk/high-reward, we-think-there's-oil-there-but-we-don't-know-FOR-SURE, exploratory wells. Production drilling CAN be done with the same type of rig (at occasionally the same or similar rates), but often is done with cheaper-dayrate rigs. Rig dayrates are purely a function of the number of correct rig types available for contract, and what the market is willing to pay to use them. And yes, the rigs usually, but not always, do move off the producing well (and in many cases are long gone by the time the well is production-tested) to another drilling location, often halfway around the world, or maybe only a few tens of feet away within the same oil field. Sorry for the length of this Post, but I couldn't let misapprehensions about the interrelated costs of finding and producing oil go by. And I haven't even touched on one percent of how oil and gas are really discovered and produced, but hey, you asked... Better read the book. Let me know (seriously!) if there's anything else you'd like to know about the oil biz, and I'll try to give you an answer(the reason mine are long is because the oil game IS complex, with lots of interrelated steps).And I used to be a long-winded English major before becoming a geoscientist.
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Thank you for a very interesting post.

I would guess that you have read a great deal of information regarding oil consumption and where oil ends and perhaps where alternative energy sources begin. My understanding is world consumption is over 75 million barrels per day and growing at somewhere around 1.8 per cent this year and will go higher when Asian Pacific economies recover.

The question I am forever trying to answer is how much new production becomes available each year versus how much pooped out production goes off line. I know the gap between what is immediately available and how much is actually produced has been narrowing for several years. There are only a few countries producing less than what they could produce if the "tap" was turned on full right now and some of them have backed off because of the threat from Saudi that if they don't, they might wish they had. I am confused about why Saudi would have this attitude as it seems to me that within a few short years the world will need all the oil it can get. I have read a number of conflicting articles on the subject of when the critical oil shortage will begin.
By throwing out the most radical of predictions "both long and short" I come up with a guess of about 5 years if we keep searching and drilling at today's pace or faster.

Would you care to make a guess based on your information?
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Thanks for the Thanks! You're correct; not only have I read a great deal about oil consumption and its end uses, I've worked for 2 Fortune 500 oil companies where every day was spent searching for, finding, producing, transporting, refining, trading, marketing, etc., the icky-smelly black stuff (as well as the colorless, odorless associated gas). Actually, I really do love the smell of raw crude oil - but as my wife says, "You also drink English ales at room temperature" - must be an acquired taste! Anyhoo, not only will I hazard a guess as to when the "critical oil shortage" will begin, I'll (groan) give you some background material based on historical data (Foolish, or Wise?) that might help you sort out those conflicting reports. Firstly, there appears to be a "critical oil shortage" that pops up in the media every 10-20 years, which is strictly based on lack of understanding of supply and demand, commodity markets, and the effects of monopolies and cartels on those markets. This ain't recent (last 20 years) history; in the early years of this century, the media was complaining about oil monopolies (Standard Oil and yes, those Rockefellers) and the nasty effects they had on energy prices, competition, and individual families (including the father of the reporter whose expose' of the Rockefellers' oil empire brought about its demise; Ida Tarbell's daddy was an independent oil producer who couldn't compete with John D. Rockefeller!). Secondly, in the late 1950's, a geologist working for Shell Oil named M. King Hubbert put together a set of curves based on then-current worldwide production and consumption rates, where data was available or estimatable, which "predicted" the 1973 "oil shortage" (despite the fact that OPEC, which as a "market force" was directly responsible for the "shortage", didn't even exist when Hubbert published his curves). Please don't misunderstand; Hubbert's analysis WAS correct for its time. However, the fact is that through new technological developments and business efficiencies unknown in Hubbert's time (2-, 3-, and even 4-D seismic, horizontal drilling, desktop computer workstations individually more powerful than the sum total of the computing power the U.S. govenment had from 1945 through 1975), the world is producing more oil, finding it faster, and getting it to market more efficiently than ever before. And yes, consumption rates are increasing. There was an article in the Oil and Gas Journal sometime within the last 5-10 years that used Hubbert's analytical techniques, factored in all the new technologies, assumed current escalation rates for discovery, production, and consumption, as well as projected population growth, and concluded that some time around the years 2035-2055, the world would experience a true "oil shortage." The authors assumed that places like Antarctica would remain off-limits, even though there's very likely lots of oil and gas there. The interesting thing about this is that most people in the oil industry believe that, because technology has bailed us out in the past, it will continue to do so; history is on their side. However, they also realize very clearly that the Earth is a finite place with finite (we think!) oil and gas resources. Personally (and yes, I have a vested interest in the oil bidness), I'll side with the technologists, while attempting in my small way to recycle as much as possible or practicable. Besides, by the year 2035, I'll be nearly 80, and my children will hopefully be in a position to have figured out how to continue to live.
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Hey! Great post! Thanks...

To add to this discussion, following is the example of typical company's Exploration, Development and Production Cycle:

One starts with Market Price of Energy
- less Royalties / Levies / Fees / etc.
- less Lifting Costs
- less General and Administrative Costs
One ends up with Production Cash Flow.

Provided Production Cash Flow is positive and healthy, company follows this with Investment (Re-investment) Program. Investment Program breaks up into two streams:
- Exploration / Development Program
- Acquisition Program
Both streams, ultimately, result in Reserve Replacement.

Finally, to put some meaning behind this Exploration, Development and Production Cycle, following are some current (and typical) target numbers oil companies (in Canada - since I am looking from Canadian perspective) shoot for:
- aim is to realize Operating Cash Flow of $10 - 12 per boe
- aim is to acquire / find / develop replacement reserves at cost of not more than $7 per boe
- aim is to replace at least produced-out reserves

So, the bottom line is: regardless what the daily rates for 'rigs' are, as long as company is able to maintain above stated 'cycle' numbers, life of the company is sustainable. Any improvement on these numbers means a bright future.
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ref.: crude predictions - long term

Sorry for my long absence from Thread, but a virus wiped out the harddisc and PC was away for repairs.

I think what we tend to forget (and I admit this is from a products trader, not an E&P guy) is that the markets in crude + crude products are one of the most transparent and widely traded of commodities in the world.
Just as an example: on the Exchanges, daily crude volume traded is easily in range 175-200 million barrels per day (!), well over the daily global consumption of about 75 million barrels. Add to that the trade in petr.products (distillates,fuel oil,gasoil,mogas) and you have huge volumes traded on a truly global and very transparent market.

A result of this situation as described is that trading goes on in almost 24 hour fashion. The prices are really a function of what goes on in the markets for the next few weeks, perhaps next 1-2 months at most, and are basically set by simply the balance between supply and demand.
No trader is really concerned, nor SHOULD he be concerned, about a price prediction for the year 2000-whatever, nor is a trader(read: the market) concerned what it cost company ABC to get the stuff out of the ground and refine it.
The crude market knows that today, as a matter of fact, there is too much crude chasing too few customers and this scenario is very likely not going to change in the next 3-6 months. Some say, and I do believe the same, that this scenario is very likely to stay with us for the next 3-5 years and thus crude prices will remain in this time frame at the range $11-15 as earlier mentioned. No other long term factors are really going to impact the prices: its the demand/supply driving the markets, and especially the demand/supply balances for the very short term.
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I am new both to the board and to trying to understand the nature of the business. My company has recently begun negotiations w/ a couple energy companies to supply our materials to them, but I despise not being well-informed about my customer's business'. Could you possibly recommend a text which would give me an overview of the natural gas business, from well to storage farm? I am no engineer, but do have need of a working knowledge of the process (temperature ranges, piping/tanking steel tolerances,etc.) The only book i've heard of so far is published by SIGTTO, and extremely difficult to come by. Any input in addition to Yergin on this industry would be vastly appreciated...

Thanks in advance

cartc@prtc.net
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Perhaps you care to identify 'materials' you are negotiating to supply to energy companies. Knowing what you are trying to sell will give me better idea what sources of information to suggest.
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Our company distributes/applies a fairly innovative thermal barrier product. Used in similiar applications to insulation of various types, but no air pockets exist, therefore it's not a traditional insulation. It's applied in coatings of mils, rather than inches, and requires no external cladding, so we're pretty cost effective in both cold and hot temps. (Effective range- approx. -200F up to +450F) I see tankage/piping as the most easily quantified applications, although (at the risk of sounding like a snake-oil salesman) its anti-corrosive properties are outastanding as well, so my current dilemna is finding a focus for initial marketing...

Appreciate the assist...
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I suggest that you get hold of 'Engineering Data Book', published by Gas Processors Suppliers Association, HQ located in Tulsa, OK. Their ph. # is: (918)493-3872. In addition to having lot's of 'hands-on' information, there are also numerous references to sources of supplemental data / publications. You may also consider joining this group. It's worth investigating ....
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I appreciate the tip. Will call them today. I assumne that these guys (GPSA) are the "Standard of the Industry", which is what I guess I was looking for. Many thanks...
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Have been off this Board for awhile (conducting a job search, of all things!), but thought of a few possibilities regarding potential markets for your company's product. 1)LNG tankers - Phillips and Marathon own a couple which make 18 trips per year from Kenai, AK to Tokyo Power and Electric transporting LNG. They lose a small portion of their cargo to direct use by the ships, and some evaporation. Since they're paid on a $/BTU basis, any loss to the above could be substantial over time. Maybe your product could make them more efficient. 2)LNG plants - they are nothing more than gigantic 2- or 3- stage cascading refrigeration units which utilize the throughput NG as part of the refrigeration process. Seems like the piping might be made more efficient through use of your product, thereby increasing overall plant efficiency and reducing costs. 3)The Space Shuttle LOX and H tanks - again increasing refrigeration efficiency and reducing the costs per mission! 4) Any subsea pipelines or control lines utilizing methanol or glycolated ethanol to prevent freeze-up. Send me the check when your business takes off;-).

P.S. I'd make a plug for any companies you know looking for geo-types, but that would be a misuse of this Board...
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We are already undergoing testing on the material to determine, on a certified basis, its ability to withstand the thermal shock associated w/ LNG piping/tankage. I guess great minds really do think alike...

In addition, since the manufacturer is under some type of non-disclosure agreement w/ NASA, I can only say that "rumor has it" that the solid boosters on the shuttle either are, or shortly will be, coated w/ a hybrid of our material- thus saving the re-insulation of said tanks after each mission.

Am very grateful for the input. Why not e-mail me re: your PS? cartc@prtc.net...

Thanks again for the input...






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