ROCKMAN wrote:“It has been suggested that PO is when it is more profitable to keep oil in the ground (so as to produce it later for a higher price).” Not saying it has never happened but in 4 decades not once have I seen this down with an oil well with any of the dozens of companies I’ve been involved with.
I was thinking in terms of the owners of the resource.
Consider a hypothetical world with a finite resource ("goop") which is owned by the rulers of various countries (so no tax/royalty complications). What is their pricing strategy for selling their portion of goop? I guess you would need to make some other assumptions, like "goop demand starts out low and grows exponentially at first" and "after peak goop, goop gets more expensive to dig up".
The question I am groping towards is, does the pricing strategy change from the early days to the post-peak days? And is this change somehow measurable or predictable?
ROCKMAN wrote:Folks really do need to accept the absolute importance of Net Present Value for the oil patch…especially the pubcos. For every year a bbl of oil is held back it loses 10 to 15% of its NPV. So even if oil prices were to increase by that rate over time the NPV doesn’t increases. But the company does lose cash flow by holding back. And very few companies don’t give preference to cash flow.
Again, lets consider this from the perspective of the resource owners (minimising the importance of the goop diggers
). I guess the hypothetical rulers would also consider the NPV of their goop. But that would seem to lead them to sell it as fast as possible, competing against each other and driving the price down.
I need to think more about this. Am I missing an assumption for the hypothetical world?