[Peakoil] Expense of Finding Oil, Nat. Gas Soared in 2008

[Keith Thomas]

Note well.

What I'd really like to know is what effect the recession has had on 
petroleum consumption. Is demand elastic (pointing to society's ability 
to adapt), or inelastic (pointing to the danger of a sudden social 
change)?

I'd also like to compare elasticities between, say, Australia, UK and 
the US. Does anyone have these data?
--------------------------------------------
Keith Thomas
www.evfit.com
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  Study Shows Expense of Finding Oil, Nat. Gas Soared in 2008
  by Kristen Hays
  Houston Chronicle, 19 June 2009
  URL: http://www.rigzone.com/news/article.asp?a_id=77447

  The U.S. oil and gas industry's costs of finding resources rose 35 
percent last year amid the wild rise and fall in commodity prices, an 
Ernst & Young study released Thursday showed.

  The three-year average cost per barrel of oil equivalent, excluding 
acquisitions of proved reserves, was $27.22. But in 2008 that spiked to 
$51.96.

  "This validates that finding oil and gas reserves is very, very 
expensive," said Marcela Donadio, oil and gas sector leader for the 
Americas. She noted that cost also demonstrates why some companies have 
delayed final investment decisions on costly expansions or new 
projects, such as those in Canada's oil sands or deep-water 
exploration.

  The study examined U.S. exploration and production results for 40 
companies from 2004 through last year. The companies, which include oil 
majors as well as large and small to midsize independents, collectively 
hold 70 percent of U.S. oil reserves and 61 percent of U.S. natural gas 
reserves.

  Overall costs, including acquisitions, rose 35 percent last year to 
$132.1 billion, the study said.

  But oil reserves fell 7 percent to 15 billion barrels, largely because 
regulatory reporting rules required companies to book reserves that can 
be produced economically at the closing price on the last trading day 
of the year.

  Last year that price was $44.60 a barrel -- far below the year-end 
2007 price of $95.

  The same rule forced reductions of 6.7 trillion cubic feet of booked 
natural gas reserves as well. Even with those write-downs, gas reserves 
rose 4 percent overall amid the boom in shale production last year.

  However, starting at the end of 2009, companies can book reserves 
based on average annual price rather than a one-day snapshot. In 2008, 
that average was about $99 a barrel.

  So as prices recover alongside the economy, reserves that were written 
off can be restored to companies' books as they become economical to 
produce again, said Charles Swanson, managing partner of Ernst & 
Young's Houston office.

  "It certainly was a year to remember," he said.

  Copyright (c) 2009, Houston Chronicle. Distributed by 
McClatchy-Tribune Information Services.
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