Strictly: Drilling and oil-field services Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Strictly: Drilling and oil-field services

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Douglas V. Fant who wrote (18792)	4/12/1998 9:04:00 AM
From: marc chatman	Read Replies (1) of 95453

Doug, thanks for the informative explanation of the planning which goes into drilling a well. I have a follow-up question. If the E&P costs out a project before bidding on a lease, do they also lock in a rig contingent on the bid being successful? If not, then they would be acquiring the lease simply based on their assumption of rig rates. And if that is the case, they will have a sunk cost in the lease. (I guess I should ask here whether they pay a lump sum for the lease and amortize the expense, or whether they make annual lease payments; perhaps they can forfeit a lease to avoid further payments. I guess I don't know how this works.) So, assuming there is a sunk cost prior to contracting a rig, that should change the economics a bit. I would suppose the E&P would proceed with the project as long as marginal revenues exceed marginal costs, even though the project may result in a loss after you factor in the sunk cost of the lease. Is this correct? I realize I could be oversimplifying the case since the E&P probably has many leases and must pick and choose which to develop. TIA

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next