Like he cares, I have worked on Shell Rigs and they dont give a toss about anything other than profit. A Shell Production Op told me that their break even price is $11, everything above that is pure profit. Its easy to tell if senior people at Shell are lying .. Their lips are moving.
Speculators succeed only so far as they are able correctly to guess the trends in supply and demand.
If the market disappoints the rising price expectations of the "longs" they become obliged to liquidate their positions at a loss.
Those who do not guess correctly have their capital obliterated by trading losses and cease to be speculators.
Speculative transactions in commodities by non-end-users and users alike exert a temporary influence on prices; they can't ordinarily create the long term trend.
Those who are speculating that oil and distillates prices will climb still higher by buying contracts for future delivery are expressing an estimate about future supplies that might well (for all the little I know) prove correct.
The participation of speculators in commodities futures markets makes it possible for producers to hedge their prospective losses and bring stability to their finances. Demagogues who assail the speculators merely sabotage the orderly production and distribution of goods and lower - rather than raise - living standards.
For what it is worth the cost of extracting oil is now far greater than $11 per barrell. This is driven by a need to replace reserves and exploration for the marginal barrell is now either in a seriously unstable political climate or the new difficult to engineer deep-water locations.
Either way this has driven up the oil firms costs and as the risk of a major correction in the price the new long-term engineering, extracting and refining contracts that they are signing up to for the next 15-20 years risk being a straight-jacket to their operations. A major correction in prices would render some projects unprofitable. This problem is even greater in other commodity markets, such as copper where prices are currently inflated by common consensus but supply can't meet demand and you can't suddenly find "lots" of copper to calm the market.
Just enjoy the bull run and be prepared to give back some at the end
The $11 a barell price was quoted by a Senior Shell Company member in front of a room full of people on a Shell fixed platform, admittedly a couple of years ago but we are talking about a fixed platform in the North Sea which would have paid for itself decades ago. I know for sure that one platform (Heather) recouped its cost in about 90 days of production and its been there for 20 years now. Once you get a well up and producing all you pay for are the running costs of the platform and maintenance, funnily enough this Shell member was being quizzed as to why there was no increase in maintenace onboard the rig while they were making extra millions due to the oil price.
Exploration is undoubtedly expensive (perhaps the most expensive part) of Oil Production and I can only say what I have seen and learned while in the North Sea but I know that Kpeffel Fells in Singapore (who make most of the new mobile drilling rigs coming online) are cranking them out without customers because they know that with dwindling resources they will get buyers.
Shell are making obscene amounts of money because of the high oil price and are keeping it as profits as maintenance on the big fixed platforms they have in the North Sea just isnt being done. Two men were killed in the legs of Brent Bravo when a patch on a pipe failed, another asset has the same problem in its legs, and has had since 2002 when I was on it. I know someone still on it who confirms this.
They are making profits of over 300 pounds a second, and until recently if you worked on a Shell rig you had to buy a phonecard to ring home. The only company that did this, the others gave free phone calls home.
Exploration is expensive, but the most expensive part of getting the black stuff ot the ground is the drilling. A seismic survey will typically cost $500,000 to $1,000,000, whereas an onshore well in Saudi will cost about $1m, and an offshore deepwater deep well will set you back a tidy $50m. Wehter or not money is made on a field often depends on how quickly it can be developed once money is raised to develop it, as compound interest on loans can mean that some wells never pay back the initial investment fully. Though i'm sure the $75 bbl price has dug some of those out of a financial hole.
Well I am on a mobile rig at the moment and we are abandoning the well we have just drilled, nowt there !! The Company that hired the rig have wasted their money but thems the breaks. The Mobile Drilling rigs make money by being hired out, fixed platforms have paid for themselves over the years. High Oil Prices have made Oil Companies extremely wealthy over the last few years but it has all gone in profits or to the Treasury thanks to the surcharge on profits (which the companies recoup by cutting down on maintenance), excrement occurs i suppose.
In the future Drilling Rigs will be obsolete really as Exploration is carried out at greater water depths, ROV work is a good one to get into now !!
Lazystudent is bang on as fields have to come online right away, until it does you dont earn money but just spend it. As the Oil and especially Gas runs out the fields that were too small to be deemed economical a few years ago will be put on line after a well is drilled most likely an undersea manifold or platform will be put on the well and away you go.
Sorry if I took the thread off topic a bit but I just found it funny that Shell would blame anyone over high oil prices as they (and in fairness ALL of the oil companies) dont mind a bit, I just see them care about profits and ignore the cash cows themselves (the rigs), I just worry that it will take another Piper Alpha to make them sit up and take notice, and I think that is not a case of if but when.
Tiger,as someone in the industry, do you know if the oil company recives a fixed price from the 'owner' of the oil or does the oil company get the full market rate, now $70 ish.
I am trying to understand how the "market" jacks up the price of oil.
If Traders are Bidding/Selling oil at $70/ barrel then they must be buying it from ? The producer or the owner Which?
Please ask around.
Shirley there must be folk on the shop floor who have inside knowledge on these matters.
Please take your time and ask around.