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Peak Oil is You


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Page added on March 30, 2009

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ExxonMobil, Royal Dutch Shell, Chevron, Total taking no chances

…While many experts have cloaked the international oil and gas industry in an aura of mystery suggesting that an era of peak oil production beckons and that OPEC, with some 30 million bbl/day of capacity is the master of the oil industry, the fact is that it is a simple business and OPEC, while large, is in fact only one of many producers. The science of geology has advanced today to the point where crude oil and gas deposits can be identified with great precision, even those at depths 20 thousand feet below sea level or in the Arctic regions or the vast deserts of Africa and Asia. Prospecting tools are so sophisticated today that the risk of drilling a dry hole is sharply reduced. Once an underground reservoir is located, petroleum engineers determine what will be the extraction costs (capital) and then, what will the production (lifting) costs be.
Once the size of the reservoir is postulated and approximate capital and operating costs are estimated, the next step is to test the structure and, if indeed a hydrocarbon reservoir is found, it is quickly delineated and a second estimate of capital and production costs is made. Following this, an estimate of the sales price of the crude oil and natural gas is made for the life of the project which can range from 5 years to 50 years. In fact, oil companies rarely make predictions beyond about 20 years and after 10 years the discount factors make further calculation marginal. With over one hundred years of experience in pricing coupled with an understanding of price trends during both up and down cycles, oil companies can quickly determine the approximate economics of any given project. After that it is a matter of execution to put the oil and gas into the tanks. The work of finding and developing an oil or gas field is different from nearly all other worldwide occupations. Expertise is hard come by and one judgment decision follows another. At the end of the day, crude oil is flowing to a tanker or into a pipeline where it will ultimately end up in



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