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

To: Douglas V. Fant who wrote (18792)	4/11/1998 10:39:00 PM
From: drsvelte	Read Replies (3) \| Respond to of 95453

From the Oil Nostrodamos on AOL: Subject: Re: wti/cushing Date: Sat, Apr 11, 1998 18:20 EDT From: Empire7 Message-id: <1998041122203100.SAA21084@ladder03.news.aol.com> gasoline (a2) in the harbor is -400 for prompts, -250 for any's and -75 for may. there are many sellers of gasa should it rally so say goodbye to gas season. monday will determine alot about the future mkt direction. we will see !! flat for now.

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