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Page added on February 27, 2009

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Deutsche Bank analyzes oil production costs

HOUSTON, Feb. 27 — A new Deutsche Bank analysis finds that in the short term, oil prices likely would have to fall to $20/bbl and below for nonmembers of the Organization of Petroleum Exporting Countries to shut in a large amount of production.

However, with investment now falling, the downside risks to supply forecasts are increasing. This suggests that upside price risks, once demand recovers, are considerable.

Deutsche Bank used research partner Wood Mackenzie’s country-by-country database to gain a better understanding of the potential impact of the current global economic turmoil on oil supply in both the short and medium term.

To assess the volume of current production that may be vulnerable to falling oil prices, the analysis started with a review of the cash costs (operating expenses plus royalties) of extracting oil within the world’s main producing regions and reviewed the risks to current production in mature basins.

With the costs of developing new fields substantially higher and new investment decisions sharply reduced, the analysts also looked at what oil price would be required for projects to deliver an economic return in today’s growth markets of Angola, Brazil, the US Gulf of Mexico, and Nigeria’s deep waters.

Oil & Gas Journal

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