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84Buff

Joined: 00/00/0000 Posts: 4179
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What does it take to drill a new well?


There might be more than 9,000 leases (different than permits), but here are a few things needed to turn that into producing oil:

1. Financing: Companies pursue and find investors willing to risk their capital. Money measured in billions depending on the complexity and scope. Are you willing to invest your money in new drilling? I am not (never have been). The real question is are the people with billions of dollars to invest, going to make them under this administration? Maybe wait until 2024?

2. Financing is in short supply. Banks are not friendly lenders to oil and gas companies, some intentionally denying loans because they are not green energy. Others that feel like making a loan are under the same pressure from the federal government - we're coming after you. If you were a banker you'd find other borrowers to make your money. Risk is ever increasing.

3. So lets say you now have financing, now you need a permit, from the federal government, who is still anti- oil and gas. Reports are permits are almost impossible to come by due to environmental considerations. That provides a multitude of excuses that essentially provide another roadblock.

4. So you now have financing and permits, now all you need is to develop the lease. Build roads, utilities, drilling sites, retention ponds, etc. If you're familiar with the construction industry, right now costs increase daily, to the point where when a public (or private) project is bid, awarded and started, the bid prices are no longer valid due to uncertainty in just about all material and equipment costs. We've seen projects that bid, had to be cut by removing substantial parts of the work, only to see the 'reduced' project cost more than the original, because the process took about 4 weeks to complete. So with the typical delay from the points above, costs just go higher and higher. Now you get to go back to investors and ask for more money.

5. Now assume that after many many months or years of obtaining investors, financing, permits, and the constructing the infrastructure, now all they need to do is get a driller. Which are scarce. In part because being a rough-neck is incredibly hard work, incredibly dangerous, and if you like normal sleep the working conditions suck. It pays very well however the young labor force isn't what it used to be.

6. Now lets assume they actually drilled the well. If it doesn't show the necessary characteristics of a high producing well economically, they may simply cap it with a complete loss of capital. If it meets the potential production criteria, it's completed and produces.

7. So now after all these obstacles, a well is producing, and has to continue producing (if its horizontal), which most new ones are, and needs to produce at a cost that will recover the cost of capital and production. When the price of oil drops below the production cost, the producer loses money. Remember the negative oil prices?

Anyone that believes Oil and Gas is punishing anyone, including the president, needs to explain that a whole lot more. And Biden did indeed campaign on shutting them down, he said it more than once, not perhaps in situations that were well thought out, but he did say fossil fuels would be eliminated. And in this case, his actions show it. His executive orders are all you need to look at.

Of course keep in mind that the federal government is telling the oil and gas industry.

(In response to this post by Buffs4Ever)

Posted: 06/23/2022 at 5:58PM



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Current Thread:
  I agree - no real value there - but he’s trying -- cswilliam 06/23/2022 2:03PM
  No, oil is $100/barrel. -- BACKinBLACK 06/23/2022 1:33PM
  Refining capacity limited ** -- 84Buff 06/23/2022 4:16PM
  More than in 2008,2010-2014? -- BACKinBLACK 06/23/2022 4:39PM
  No -- 84Buff 06/23/2022 4:49PM
  So, the nation suffers because the oil companies are -- buffaloaded 06/23/2022 8:12PM
  I didn't say that -- 84Buff 06/24/2022 09:00AM
  Biden's exec order -- 84Buff 06/24/2022 09:13AM
  I don’t know. It happened around the same time, but -- BACKinBLACK 06/24/2022 09:36AM
  What does it take to drill a new well? -- 84Buff 06/23/2022 5:58PM
  Thank you for explaining that. - B4E ** -- Buffs4Ever 06/23/2022 6:01PM
  So we are in the same page. -- BACKinBLACK 06/23/2022 5:09PM
  No they can't -- 84Buff 06/23/2022 5:21PM
  It seems to be a bemand/supply issue. -- Uppstate 06/23/2022 2:58PM
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