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Breakdown of the cost of oil

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 titanic1    244


Exploration costs (about 5%) - finding the oil and confirming it's viable. Simply setting up a deep water exploration well can cost $100-200m, and only one in four is successful [3]. 

Capital costs (about 20%) - leasing land, building rigs etc. 

Operating costs (about 10%) - paying your crews, transport, maintaining heavy machinery, managing reserves, re-drilling blocked wells etc.

Tax (about 40%) - which varies hugely between counties and states - for the UK about 62%, Norway is over 80% [1] and 35% in the US [5]. 

Cash margin (about 25%) - which includes profit and money set aside for future investment and rainy days. 

The oil price isn't the cost of petrol in your car. To get to your pump, you also have to factor in:

Distribution and Marketing (8%)
Refining (14%)

All of this is just global averages though, and reality is more complex.

There's truly no standard cost of oil. It costs about $2-$3 to extract a standard barrel from the ground in Saudi Arabia, whereas a barrel taken from tar sands in Alberta can cost more than $60 [1]. Some oil costs much more to refine. And so on.


The world has changed for oil producers. When crude-oil prices were more than $100 a barrel just two years ago, the ensuing profits were huge, filling government coffers and swelling company earnings. Now prices barely cover the average cost to get the oil out of the ground in places like the U.K. Additional expenses, like taxes on profits, mean that the actual breakeven price for many projects is higher, and newer and more complex projects generally fall well above the average cash cost of production. Oil-producing nations from Saudi Arabia to Norway are reining in spending while big energy firms like Royal Dutch Shell PLC and Chevron Corp. have made deep spending cuts and laid off thousands of workers. Here's a look at the average cost of producing one barrel of oil—42 gallons—in a dozen nations.


Capital spending: 64.6% of barrel cost

Much of Norway’s remaining resources lie in remote waters and are more difficult to extract or are further from existing infrastructure and markets, resulting in higher development and transportation costs. However, the region hasn’t been in production for as long as oil and gas fields in neighboring U.K. waters, so there are still substantial resources left to extract.


Capital spending: 45.2% of barrel cost

Nigeria is Africa's largest oil producer, but frequent incidents of sabotage and oil theft have hindered the sector onshore. Many newer projects are focused offshore, where production is more secure but the capital investment required is higher. Earlier this year Royal Dutch Shell PLC said it would delay a decision to progress a deep water project.


Capital spending: 51.1% of barrel cost

The U.K. has some of the highest production costs in the world as the oil and gas is offshore in deep stormy waters. The region has been in production since the 1970s and remaining resources require more costly technology to extract, while aging infrastructure such as pipelines, production hubs and terminals require constant maintenance and upgrades.


Production costs: 43.4% of barrel cost

Most production growth in Canada comes from oil sands deposits in the remote boreal forests of northern Alberta, which have some of the industry's highest capital costs and longest development timelines. Canada's oil sands represent the third largest reserves in the world after Saudi Arabia and Venezuela, but its crude trades at a substantial discount to other North American grades due to its low quality and limited pipeline access to market. Canada also produces declining amounts of crude oil from conventional, shale and deepwater Atlantic wells.


Production costs: 34.9% of barrel cost

Twenty-five years ago Indonesia produced close to 2 million barrels of oil a day, but production has fallen and many of its aging fields require investment to enhance recovery. New opportunities are generally more technically challenging and costlier. Tough government policies have also discouraged investment, though more recently the government has sought to introduce more generous terms.

U.S. non-shale

Production costs: 24.5% of barrel cost

Drilling in the U.S. Gulf of Mexico has migrated from shallower depths to deep water, sending production costs surging as companies plumb reservoirs thousands of feet below the water’s surface. Oil production in the region peaked in 2009 at 1.56 million barrels a day, before declining for several years. However, output surged last year to 1.54 million barrels a day as several long-awaited projects came online.

Read more... http://graphics.wsj.com/oil-barrel-breakdown/

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