Drilling for Oil Starts to Pay as Price Soars

[bemildred]

Searching for oil has become one of the most profitable things anybody can do. The ramp-up in the oil price is raising hopes that the industry might start putting its money where its mouth is. This may lead to greater emphasis on exploration rather than cost-cutting or buying other oil companies.

A study by oil consultants Wood Mackenzie has modelled the effect of oil prices on the profitability of exploration. Assuming they could sell the oil
they have discovered for $40 a barrel, the best explorers would have made returns of more than 20 percent on every dollar they have ploughed into finding new oil supplies over the past 10 years.

Even the worst performers out of the 28 top international oil firms surveyed would have made a 12 percent return.

When the first version of the study, Exploration Strategy and Performance, was released two years ago, it made waves in the oil industry by showing that the bottom ranks among oil companies were destroying value when they tried to find more oil. Given the level of discoveries and their costs today, Wood Mackenzie says, at a $20 oil price, two thirds of the companies would be destroying value.

Rig Zone