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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: The Perfect Hedge who wrote (7505)	1/10/1998 7:07:00 PM
From: bw	Read Replies (1) \| Respond to of 95453

Some more: <<Good question Sphuntley. Let's start with Texaco's CEO Bejur commenting about buying on wall street and looking at project's that can make money @$15. This can be considered as a fairly good baseline, however I would use $16. I have not done economic analyses since retiring 5 years ago, so the following numbers will be somewhat out of date. Perhaps others can update, correct, and add to them. Costs are very generalized because they depend on numerous factors. Some are: 1) Size of the field - generally the larger the reserves/well & per field, the cheaper the overall unit costs; 2) Location- onshore vs. offshore (water depth & roughness) - deep water hostile environments require giant fields to be economical, remote locations will increase costs, plus risks related to foreign operations; 3) Type production - Oil, Gas, Condensate, Other, Combination; 4) Production factors: depth, initial & decline rates, secondary recovery, dev. well success rate, others; 5) Economic factors including royalties and time value of money; 6) Others which I haven't taken the time to remember. minimum probable Finding Cost - includes seismic, leasing, & wildcat drilling on all prospects in a play $4 $6+ Development Costs- Dev. wells, lifting costs, platforms, pipelines, etc. $3 $4+ Royalties & other $1 $2+++ This gives a very generalized broad range of $8 to $12+++++ with most fields being nearer $12+++++ because most are smaller size and thus will have higher finding cost. If you were funding these million to billion dollar projects knowing the extremely high risk (only 1 in 9 rank wildcats, 1 in 3 wildcats are economical) and considering that the wells/field will take several years to payout, what rate of return on your money would you require? $15 oil would not make it for me unless I have already spent considerable $$ on seismic & leasing and needed to drill a lease that looked very good. Been there, done that. In the U.S. there has been very limited rank wildcat drilling for many years; the best (high potential) in U.S. is the GOM deep water sub-salt play. Hope this will help answer your question related to the economics of looking for reserves and why Bejur and other CEO's must look everywhere, including wall street, to find them.>> <<<considering that the wells/field will take several years to payout, what rate of return on your money would you require? $15 oil would not make it for me unless I have already spent considerable $$ on seismic & leasing and needed to drill a lease that looked very good.<<< ROI. you nailed it !! i have been saying this for months and nobody seems to care, that is until now. oil does not need to drop below production costs for drilling to be "moth balled", or reduced. why would a major make an investment if roi is going to be in the low single digits, excluding risk ? answer, they won't if they can find better returns elsewhere. Instead, these $$ can find their way to projects such as refinery expansions, terminal buildouts, pipeline projects, tanker farm expansion, expansions into the electric mkt( you will start to see), etc.. majors don't drill because they care about oil prices, they drill for economic reasons, thats all. if they get the best returns from drilling, or belive thats the best investment for the next 5-7 yrs, they spend the moolah. the questin to ask yourself is, is this the best place for majors to spend their $$. Also might add that the proven reserve arguement is not suitable. that is a balance sheet item used to inflate share price and has already been done. in todays mkt shareholders want returns.>> <<The huge short position in FLC was to arbitrage Buy RB, short FLC. Bingo no market or individual stock risk. Just deal risk. This always happens in stock deals. You will see huge short positions build in T over the next few weeks. The arbitrage guys are not making sector comments, decisions. FLC could've soared and they wouldn't have covered. They knew they had the RB to offset.>>