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How Much Does It Cost To Produce 1 Barrel Of Oil?

Business

Summary

  • The profit of any oil company depends on the costs it needs to produce 1 barrel of oil, technically spoken 1 barrel of oil equivalent (boe).
  • Many European companies are pure oil producers and give direct clues about production costs of that commodity.
  • In 2014, the European upstream industry did rather well, but it is questionable how much longer profitability can be maintained.

Background

Europe is generally not known as an oil producing continent. Although there had been some significant deposits, due to the continent’s high demand for hydrocarbons, they were depleted many years ago. In 2010, Europe needed to import 50% of its natural gas demand and 70% of its liquid demand. Additionally, dependency is expected to rise significantly within the next ten years.

The only remaining relevant area of hydrocarbon production in Europe is the North Sea area and partially the Norwegian Sea. Production in the North Sea stepped up strongly supported by governments after Europe recognized its hydrocarbon dependency after the first and second oil crisis in the 1970s. Many areas in Norway and the UK became rich because of that development. Nevertheless, due to its off-shore nature production costs in the North Sea tend to be high. Additionally, production has peaked a long time ago and – unlike in America with its tight oil boom – there are no signs that the trend will change soon.

European companies were always forced to look for their assets outside the continent. Generally the can be divided into former NOCs (with a government that lost control more or less) and companies that are not related to any specific country. But I also consider enterprises from North America with their assets only in Europe to be European. Most of the majors whose production costs I have already calculated are originally also from Europe, but no one would call them European companies. In that article I calculate production costs for a number of European companies. Some of them are divisions of much bigger conglomerates: Bankers Petroleum (OTCPK:BNKJF), BG Group (OTCPK:BRGXF), Galp Energia (OTC:GLPEF), Ithaca Energy (OTCPK:IACAF) and Maersk Oil (OTCPK:AMKAF).

Cost model

The key point for me is to catch the real production costs of hydrocarbons as accurate as possible. For that reason I only consider costs that are directly related to oil and gas production. As the upstream business is a pure commodity business, many companies have bought derivatives to hedge their sales. As gains or losses from that instruments are not directly related to production, I do not consider them directly in my method. Nevertheless, as they might have impact on the future of the company, I mention them if they are significantly high. The same is true for impairments.

Oil is hardly ever produced as pure liquid. Normally it comes as a mixture with natural gas and gas condensate. Although I only consider companies here, that mainly lift oil, they also produce significant amounts of gas. Hence, it does not make much sense to apply costs to the production of oil alone. To deal with this issue the concept of barrel oil equivalent – boe – has been perceived. 6000 cubic feet of gas at standard conditions are about one boe. All costs mentioned below refer to one boe, meaning that are the costs related to the production of 1 bbl of oil, 6000 scf of natural gas or a combination of both. Let’s say the price for 1 barrel of oil is around $60 and the price for 1000 scf of gas is about $3. This means, revenue from 1 boe of oil is higher than revenue for 1 boe of gas ($60 versus $18). As there are also fields that only produce gas, this article tends to underestimate the costs of oil production.

Commonly, costs are divided in costs that can directly be related to production (cost of sales) and costs that cannot directly be related to output (overhead). However, many oil companies are also active in downstream and midstream or other economic sectors (e.g. ExxonMobil (NYSE:XOM) in chemical engineering). Hence, I have divided sales, general and administration expenses (SG&A) by total revenues and multiplied it with the revenue of the E&P division to get SG&A for E&P. I did the same for any similar type of cost (marketing expenses, R&D) and for financial expenses. Depreciation, Depletion and amortization, on the other hand, can be directly linked to oil production.

Costs of sales are divided into 3 sub-categories:

  • Exploration costs
  • Lifting costs
  • Non-income related taxes

Exploration costs are costs related to all attempts to find hydrocarbons. This category includes cost for geological surveys and scientific studies as well as drilling costs.

Lifting costs are the costs associated with the operation of oil and gas wells to bring hydrocarbons to the surface after wells (facilities necessary for the production of oil) have been drilled. This figure includes labor costs, electricity costs and maintenance costs.

Non-income related taxes: as production of hydrocarbons is such a lucrative business, governments also want to have their shares. There exists an abundance of different model how the state can profit from hydrocarbon production (profit sharing, royalties, etc.).

It might be, that different companies use different categories for the same type of expenses, but eventually the sum of all costs should be their total cost for producing 1 boe.

The following figure shows the pattern of the cost model:

As I have noticed in one of my articles, that cash flow situation does not look well for the majors. In the long term, a profitable company must be able to generate enough cash flow to cover its capex and to buy money back to its shareholders (either via dividends or share buybacks). Therefore I included operating cash flow and total capex in my data. Operating cash flow and capital expenditure both refer to the whole company. Capital expenditure is investment in assets as well as in subsidiaries if they are not consolidated. This number does not include any subtractions because of the selling of assets. I also add the cash flow companies generated through sale of assets.

Application on 5 European companies

Of the five companies in the article, I have already considered 3 in my investigations about 2013’s production costs. The two newcomers are Galp and Ithaca. Galp is a conglomerate of various Portuguese companies that are related to the upstream and downstream business. Its IPO on the Lisbon Stock Exchange took place in 2006. The company has assets in Portugal, but also in many countries that were former Portuguese colonies (e.g. Brazil, Mozambique, and Angola). Ithaca Energy is a North Sea operator. Not surprisingly, the Aberdeen-headquartered enterprise’s assets are located in Norway and the UK. Current activities are focused on the Greater Stella Area of the UK Central North Sea. All companies which the exception of Galp stated their results in USD. For the Portuguese company I have used a conversion factor of EUR1 = USD1.329.

The results can be found in the table below:

(click to enlarge)

(source: own calculations based on the ARs for 2014)

Liquids do not only mean classical oil, but also natural gas liquids – NGL.

I have also applied my methodology on the following companies:

Discussion

2014 saw a drop in the oil price of more than 50%. However, capex budgets for that period were decided earlier in a high price environment. Of the three companies, I investigated the year before, two increased their production, while one decreased it – BG.

Bankers is a Canada-listed upstream company that gets its whole production from the European country of Albania. In 2013 as well as in 2014 the company’s production consisted of 100% oil. The fall in the oil price can easily be seen on the balance sheet, as average realized revenue went down to $77.21, a significant discount to the Brent price that amounted $98.95 in the same period. On the other hand, the company was successful in the reduction of its costs. Especially remarkable is the reduction in financial costs. Eventually, Bankers achieved a high margin of more than 32%.

Lately, BG got a lot of attention in the media, as the company was acquired by Shell in early April. The enterprise is one of the relative few companies that decreased their production in 2014 compared to 2013. Because BG could increase its percentage of liquids produced, the company could increase its average realized revenue per boe. But costs also rose significantly. Costs of sales per boe increased by roughly 50% and depreciation by more than 40%. Nevertheless, the very low SG&A and interest expenses should also be noted. Below the line, pre-income tax margin fell to still very healthy 30%.

Galp is merely an oil producer and could therefore realize a relatively high average price per boe sold. Although it is the only upstream company in Portugal and has assets in many continents, it produced merely 11.13 million boe in 2014. High are the exploration-related costs per boe, but costs of sales are roughly average and so is depreciation. As one can expect from a government-related company, financial expenses per boe are low. Eventually, Galp had a pre-income tax margin of 11%, hardly a reason for joy. The company was able to fund its capital expenditures with operational cash flow, but this includes the whole business and not only the upstream segment.

The North Sea-centered Ithaca had high costs as one can expect from a company that produces only off-shore. Total cost of sales in 2014 are among the highest I saw for any company and depreciation per boe is also significant. However, the products of Ithaca is high quality oil that could achieve a high price on the markets. For such a small company (slightly less than 4 million boe produced in 2014) SG&A expenses are rather low and even financial expenses per boe are somewhat acceptable in relationship to realized revenue for the quantity. Additional items on the company’s balance sheet were impairments of $441 million and gains on derivatives of $175 million.

Maersk Oil, a part of the big Maersk conglomerate (mostly associated with shipping), is the next high cost, off-shore oil producer. Realized revenue per barrel oil fell by more than 10%, most attributed to the fourth quarter. Maersk Oil was relatively good in handling the company’s costs. Costs of sales went down by nearly $8 per barrel and depreciation went down by $4 per barrel. Eventually, profit margin was nearly equal with 15%. An additional item on the income statement were impairment losses of $2.2 billion (amounts more than a quarter of total revenue in 2014). Interesting is the statement of cash flows. The whole company was barely able to cover capex with cash generated from operational activities.

Overall, European companies were still positive on 2014’s price level. Naturally, many European oil producers are active in the North Sea or off-shore otherwise and they felt the fall in the oil price strongly. As some of them only produce oil, they might be a proxy for production costs of oil (although a bit on the high side). Although cost reduction effort are clearly recognizable, it is more than questionable, if any of the North Sea companies could survive long term with an oil price level of $60 for Brent (without hedging). This once again supports my opinion that the current oil price level is not sustainable.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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22 Comments on "How Much Does It Cost To Produce 1 Barrel Of Oil?"

  1. Makati1 on Tue, 21st Apr 2015 7:50 pm 

    “How Much Does It Cost To Produce 1 Barrel Of Oil?”

    Maybe the correct question is:

    “How Much Energy Does It Take To Produce 1 Barrel Of Oil AND get it to the end user?”

    EROEI is the governing limit and we seem to be fast approaching it.

  2. rockman on Tue, 21st Apr 2015 8:19 pm 

    “EROEI is the governing limit and we seem to be fast approaching it.” No it isn’t. And since I’ve explained enough that my dog understands it now I’ll skip the explanation.

    I have no idea how he came up with his numbers but I can assure everyone that his lifting cost greatly exceeding is absolute bullsh*t.

  3. Bandits on Tue, 21st Apr 2015 9:33 pm 

    AFAIK Mak is correct.
    What fool would conduct any endeavour, or enterprise if the cost was greater than the return.
    The gap between actual production costs for oil and the return on investment was originally, too large to meter, or even consider as a limiting factor.

    That happy time has long since passed and the gap narrowed considerably but has been (relatively recently)camouflaged by debt, lies and the cost of one type of energy verses another. If the energy required to produce a barrel of oil was actually another barrel of oil, then of course it’s a moot point.

    Denying that EROI is of no concern might be good for the soul and dogs but in the long run, apart from not having a market to sell into, it is the governing factor for oil production and all life in the universe…even hell is subject to the laws of thermodynamics.

  4. Makati1 on Tue, 21st Apr 2015 10:49 pm 

    Rockman, EROEI IS the limiting factor no matter what the cost in money. When the limits are around 10:1, the wells will shut down. They will be a net energy loss, not a net energy profit, even if oil is $1,000/bbl.

    Bandits said it well: “If the energy required to produce a barrel of oil was actually another barrel of oil, then of course it’s a moot point.” Trading natural gas energy to keep the oil pumping is a sign of denial and desperation. Soon both will be racing for the bottom.

  5. dubya on Wed, 22nd Apr 2015 12:04 am 

    I’m going with the Rock on this one.

    Nobody,and I think I am accurate in saying NOBODY – knows what the actual EROEI is – do we include the costs of supplying vegetables to the helicopter mechanics? They have to eat anyway. But the rigs don’t work without helicopters.

    On the other hand everybody (and I think I am accurate in saying EVERYBODY) can find out what the price of a barrel of oil and a pound of carrots is.

    The Bituminous sands take high quality NG and convert it to low quality crude at a profit. While this society values a joule of gasoline more than a joule of methane there is likely to be some very screwy energy accounting.

    We may still be drilling for plastics feedstock when it costs 10 times more to drill than the price of the fuel. (assuming society is still functioning)

    And don’t get me started on the effect of interest rates, capex, cash flow and dividends, ’cause I haven’t got a f**king clue.

  6. Go Speed Racer. on Wed, 22nd Apr 2015 12:13 am 

    If the EROEI is 1, then it takes one barrel of oil to produce one barrel. Will we keep drilling under those conditions? Oh hell yes. Because the government still counts it as a barrel produced. So the activity will continue even when it yields nothing.

    If it was a sane society, and it is not, the oil production figures would be pre-adjusted downwards to factor in EROEI. They dont make such changes because the oil production would be reported suddenly lower. TPTB want to pretend all is normal as EROEI approaches unity.

  7. forbin on Wed, 22nd Apr 2015 4:03 am 

    I ‘m with dubya and rockman

    yes ERoEI is important when oil is regarded as a source of energy

    but oil is much, much, more than that

    and oil field will not be produced if it costs $1 to get back a $1 *

    it may be produced at margins of 95 cents to get $1 back if the volume is large enough.

    at 50 cents to get a $1 back ….a sure bet, I’d posit.

    others have put forwards that a 10:1 ratio is needed for a modern 1st world economy

    I do not “dis” the EROEI concept , it’s valid but money changes everything,

    * interventions via the banks and the Fed will alter this if your cost dollar is essentially “free”

    What would I expect from declining EROEI of oil ?

    well I’d expect to see more poor people as the total energy inputs to the economic system ( other inputs being coal,nat gas, nuclear, re-newables , etc. ) declines .

    There should be ample evidence of this ( and the effects will not be even , the top 0.1% will hardy notice at this stage of the game, indeed they may be better off)

    interesting times !

    Forbin

  8. Bandits on Wed, 22nd Apr 2015 5:21 am 

    The energy slaves can be worked to death, to achieve what you want, if that is a desired outcome. That is okay if there is a boundless supply of slaves.

    In the real world, slaves are not limitless. If the slaves you have, are required to work ever harder to achieve the same or less of an outcome, they need an increasing supply of energy to remain viable. Eventually it becomes unviable to maintain the slaves……..maintenance costs more than outcome of the desired result. The slaves will die not matter what.

    Printing money would allow energy to be purchased to feed the slaves. It does not change the concept of EROI. It would allow you to deny and lie, that’s about all. If the money earned from producing a barrel of oil was less than the price of the energy needed to……….well that’s EROI.

  9. rockman on Wed, 22nd Apr 2015 7:22 am 

    Forbin – “…and oil field will not be produced if it costs $1 to get back a $1”. Actually even that’s overstating the effect of the amount of oil needed to justify drilling a well.

    Well, I’ll do it again: you stubborn folks grossly overestimate how much energy it takes to drill, complete and produce a well even when you add the embedded energy in the infrastructure. A well that doesn’t even ultimately generate half the its total cost will produce much more energy used to create it. Yes: wells with EROEI’s of 4 or 5 are not going to be attractive investments and won’t be drilled. And guess what buckaroos…that was at $100/bbl. But we don’t have that price any more. At current prices I would guess the investment in a well today becomes unattractive at an EROEI of around 8…maybe even as high as 10. Does that make sense: the Btu’s to drill a well a year ago hasn’t changed if you drilled that well today. Neither has the amount of oil it would produced. What has changed big time is the revenue: the ROR of many wells have dropped below acceptable levels which is why the rig count has dropped.

    Again folks…a little common sense: if a well takes the same amount of oil to drill today and produces the same amount of oil today why isn’t it being drilling today if the EROEI hasn’t changed?

    As was said this isn’t an attack on the concept of EROEI. But it is a very specific attack on any effort to convince that low EROEI determines if a well is drilled. Never has been a factor and never will be. Trust me: the oil patch doesn’t give a sh*t if it takes more than 1 bbl of oil to produce 1 bbl of oil. What it does give a sh*t about is spending $1 to produce less than $1 of oil. That’s not the business we’re in.

    It really ain’t rocket science. LOL.

  10. Davy on Wed, 22nd Apr 2015 7:24 am 

    The EROI issue is clouded and muddy just like so much else associated with BAU. BAU is global, interconnected, complex, networked, and energy intensive. BAU has a brittle efficiency that has been remarkably resilient but with a brittle sustainability. BAU is driven by growth and the progress of increasing complexity in the battle against entropy and the support of a growing population.

    EROI gets clouded in this equation because we have multiple sources of energy. We have multiple locals that are locked in a global. Some can feed off others in this arrangement. The financial system allows manipulation and corruption. It allows wealth transfer and cannibalization of infrastructure. BAU currently has momentum. This momentum has inertia that resists degrowth. BAU cannot degrowth and remain BAU.

    Most all BAU creatures get up every day and desire to produce something. The system is geared to production. Oil is a foundational commodity but until we see BAU in a clear bumpy descent or collapse we are going to see our foundational commodity oil a vital part of the equation of production and growth regardless if EROI is negative here and there. The EROI of oil may be theoretically at a point of no net energy contribution but the BAU arrangement can allow cross subsidies from one energy source to another and from one group of locals to another.

    This will be the final countdown of BAU when the system starts to drift from the bumpy plateau into the bumpy descent. The financial system and the JIT production and distribution industrial system will start going dysfunctional and irrational at the point of the turbulence of descent. We will see irrational market conditions and economic abandonment both rational and irrational. Networks and industrial sectors will gyrate in this random and chaotic condition of economic crisis. TPtB will be engaged in irrational policy trying to problem solve predicaments wasting precious resources. TPTB will likely be locked in battle both hot and cold further straining BAU’s vital interconnectedness.

    Human nature is both rational and irrational. The rationality will be there of course but the irrationality will begin to creep in like water into a sinking ship. Cracks will appear randomly and the damage will vary randomly. Oil being a foundational commodity will have value and utility despite EROI. It is going to be used and produced after its EROI is a net negative per the requirements of a modern economy. Not all oil will be net negative but increasingly more and more will be cementing descent.

    People, resources, and the system itself will be cannibalized to support oils use. Oil has to be used to allow any BAU. BAU is all we have and know it will be followed to the bitter end. This does not mean this new phase of BAU decay can last, it can’t. It will be the period of hypothermia where the core functions and TBTF nodes will transfer the vitals of life from less important sectors triaging out those less essential sectors. Collapse works that way. I do not know how collapse will occur but a slower drawn out collapses is likely in the beginning considering there is no plan B’s anywhere.

    EROI is very useful when we have a functioning system in growth and adequately supplies. When that system is in an end game descent the rules change per the random and the laws of chaos. We just can’t expect the energy side of BAU to behave rationally at least in the beginnings of descent. EROI does not change the direction of descent that will be assured with a negative economic EROI but it can’t explain the descent process. That is unexplainable until after the fact when we look back and see how this complex system broke up. If we are even still around in that position of reflection. By then we may be more concerned about rudimentary survival.

  11. rockman on Wed, 22nd Apr 2015 7:34 am 

    “If the money earned from producing a barrel of oil was less than the price of the energy needed to……….well that’s EROI.” And that’s exactly the point being missed: the cost of the energy used to drill a well is typically less than 15% of the total cost…often less than 10%. Got it now: if it takes $600,000 of energy to produce $6,000,000 worth of energy (an EROEI of 10) it won’t get drilled if it costs $6,000,000 to drill, complete and produce. FYI: that wouldn’t even be a breakeven well. Using the typical discount rate we run in economic analysis this well would have a negative rate of return.

    Again, losing money ain’t the business we’re in. LOL.

  12. simonr on Wed, 22nd Apr 2015 7:40 am 

    I am with Rockman … Nuff Said

  13. shortonoil on Wed, 22nd Apr 2015 8:30 am 

    Nobody,and I think I am accurate in saying NOBODY – knows what the actual EROEI is – do we include the costs of supplying vegetables to the helicopter mechanics?

    “Its not what you don’t know that hurts you, its what you know that ain’t so!”

    We know exactly what the ERoEI of conventional crude is with an error margin of ±4.5%. What we don’t know is what that distribution for the world’s 48,000 fields looks like? That is more pertinent to the subject of the article. 60% of the world’s production is coming from 1% of its fields, the Giants, and it is the production cost of those 1% that are determining the present price structure. Although old, and highly depleted out, they still represent the lowest cost production sources available. It is their production costs that sets the floor to the price of oil!

    Robelius in his “Giant Oil Fields – the Highway to Oil” concluded that the Giants would be coming off their plateau by the end of this decade. That appears to be ever more likely. Once the Giants begin their descent it is likely to be very steep; in the area of 14% per year. The world’s source of low cost, affordable petroleum will rapidly come to an end. The world’s petroleum equation is not determined by the amount of oil it produces, but by the amount that it produces that is affordable to the economy. Only a small number of the world’s fields can supply production with the capability to power that economy.

    We know that the average field will reach its dead state in the 2030 – 2035 period. When the the Giants will reach it is not know. That will ultimately depend on how the distribution of ERoEI’s for the world’s 48,000 fields turns out. We have only the work of Robelius, Simmons, Aleklett, and a handful of other researchers with which to make that judgment call. It could very well be much sooner that most assume!

    http://www.thehillsgroup.org

  14. farmlad on Wed, 22nd Apr 2015 9:09 am 

    Got it now: if it takes $600,000 of energy to produce $6,000,000 worth of energy (an EROEI of 10) it won’t get drilled if it costs $6,000,000 to drill, complete and produce.

    That’s true until the CEO can convince some investors(using other peoples money) to invest an additional $ million or two. Convincing investors is easy since the MSM has already conditioned them that energy is where its at, and there’s not many options that are any healthier.

    Of course this would only be true under certain conditions, for example “if the company is going broke anyways, and they don’t know how to do anything but to drill”. This could give the CEO and his cronies another couple years to increase their salaries, and btw it also conveniently gives folks a job, nothing wrong with that.

  15. shortonoil on Wed, 22nd Apr 2015 9:42 am 

    “This could give the CEO and his cronies another couple years to increase their salaries, and btw it also conveniently gives folks a job, nothing wrong with that.”

    What is wrong with that is that the salary of some CEO is actually coming from the pension funds of people who have worked their entire lives to build them up. This used to be called fraud, and CEO like that went to jail. In the new normal, of Central Bank everything, they are given million dollar golden parachutes, and allowed to retire in luxury, as the people that they defrauded get to eat cat food. It is a great system for a society returning to the Dark Ages!

  16. rockman on Wed, 22nd Apr 2015 9:47 am 

    farmlad – That is a valid point. I’ve seen first hand crooked promoters talk investors into drilling wells with little chance of success because they put some of the upfront money in their pockets. I’ve seen management of public companies approve poor prospects in an effort to appease shareholders… temporarily. Much of the motivation of the pubcos drilling the shales was to appease Wall Street with increasing proved reserves even if those wells were marginally profitable.

    But in the Big Picture those situations are very insignificant.

  17. gdubya on Wed, 22nd Apr 2015 10:06 am 

    Shorty – I am absolutely convinced that when the EROEI is less that 1 petroleum society will eventually collapse. Probably 10 is required. But knowing EROEI to within 4.5%? I’m not convinced.

    And I’m not picking on you specifically but your whole following argument appeared to be based on price. It seems to me to be crazy difficult to separate the two in a world of quantitative easing and unemployment insurance.

    In mediaeval England if you planted 1 barley corn & got back 3 that was starvation, if you got back 5 that was plenty. So barley EROEI was probably 4.

    Even with ‘conventional’ oil the calculation rapidly gets wishy-washy: does it include delivering gasoline to petrol stations by semi? Probably. Military intervention in The Middle East? Probably not.

    Offshore requires helicopter fuel, which is ‘wasted’ energetically but gets counted in GDP. The oil used shipping the plastic toy tractor to the farmer that grows the carrots for the helicopter mechanic? Is that consumption or production?

  18. shortonoil on Wed, 22nd Apr 2015 1:57 pm 

    ‘Shorty – I am absolutely convinced that when the EROEI is less that 1 petroleum society will eventually collapse. Probably 10 is required. But knowing EROEI to within 4.5%? I’m not convinced.”

    We use price as a benchmark because price is the only existing data-set for which we can be sure is almost 100% accurate. We use WTI instead of Brent because it has a much longer history (more data points to compare). The Etp Model calculates the energy required to produce petroleum from a thermodynamic statement utilizing accumulated production as reported by the EIA. The energy determination is then converted to nominal dollars using this historic relationship, as reported by the EIA and the World Bank:

    http://www.thehillsgroup.org/depletion2_008.htm

    The two data-sets (the one reported by EIA price, and the calculated price from the Model) differ by no more than ±4.5% over the 47 year period that the study encompasses. We conclude that the study’s margin of error is ±4.5%.

    The Model projected the recent price decline almost a year before it occurred. We posted this page last September. The date is on the second graph of that page:

    http://www.thehillsgroup.org/depletion2_022.htm

    The Model has made several other projections that have since turned out to be accurate. In light of its formulation from basic physical law, and its projective capabilities, both historically and to date, it seems highly unlikely that it can be in error.

    Of course, there will be people who perceive the world from their preconceived notions of what reality should look like, no matter what amount of evidence there is to the contrary!

    http://www.thehillsgroup.org

  19. rockman on Wed, 22nd Apr 2015 2:40 pm 

    And to make sure no one is confused there is no EROEI value for oil production in the world today. But there are individual EROEI values for each well. About 3 years ago I drilled a well in S La that currently has an EROEI exceeding 70…and that includes an estimate of the embedded energy in the infrastructure. And given it’s still pumping the same 400 bopd it has from the first day it came on the ultimate EROEI will be well above 100.

    OTOH two years ago I drilled a well that will never produce a single Btu…it was a dry hole. Of course that wasn’t what the initial economic analysis assumed: the EROEI would have looked very impressive had I bothered to calculate it…probably exceeding 50.

    So when folks say the EROEI of oil production will reach some value in the future I’m not really sure what they mean. There were wells drilled 60 years ago with EROEI’s of 100 and there were dry holes drilled. And in the future there will be wells drilled with high and low EROEI’s. Is there such a thing as an average EROEI of all oil production past, present and future? Of course. But I can’t imagine how one would calculate the EROEI of every well drilled to come up with some weighted average since there is not a single entity on the planet with access to all the data.

    There would be the same problem trying to come up with the profit margin of all wells drilled.

  20. Nony on Wed, 22nd Apr 2015 3:49 pm 

    EROI is moronic. We don’t need some hippy leftist loser blog commenters to come up with some inaccurate and subjective control mechanism for energy accounting.

    We have this thing called the free market. People trade this thing called “money” for things. They do this thing called “investing” where they spend some money now in the hope/expectation of getting more money back later. This activity is what drives the entire economy.

    We don’t need not steenking EROI!

    https://www.youtube.com/watch?v=C7txPU6efos

  21. Davy on Wed, 22nd Apr 2015 4:42 pm 

    NOo, you scared me a few days ago when you said you were done with the PO forum. You sounded drastic and frankly slightly pressured. I figured it was cognitive dissonance producing an anxiety attack.

    Your comment on EROI shows you are back to your old cocky self. Calling EROI moronic is just misplaced. EROI is a tool for academics to determine the health of various energy sources in relation to the energy demands of society. It is a serious tool these days because of the dangerously low EROI’s we are facing with most current energy sources.

    It is these low EROI’s that should cause a general alarm with TPTB. We should be making arrangements to adapt to this cliff we are approaching. Instead we have people like you who reject it and discount it. If nothing else it should be a warning of big changes ahead.

  22. Ismael Valigy on Sun, 3rd Jul 2016 3:41 am 

    Dear dubya /
    I enter late in this comments but I not agree with you when mix Vegetables in Oil price. The author was clear when define the cost model by determine parameters such direct related to production, pointing this lines in the article: “Cost model. The key point for me is to catch the real production costs of hydrocarbons as accurate as possible. For that reason I only consider costs that are directly related to oil and gas production.”
    Vegetables or food to the workers or people are related to indirect production costs.
    Thanks

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