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Exploration at a Price
A report released summer 2009 by Ernst and Young, a firm that routinely analyzes the oil and natural gas industry, shows the cost the finding oil and natural gas jumped 35% last year.
Ernst and Young evaluated 40 different oil and natural gas companies from 2004 through 2008. The firms were large and small-to-midsized. They owned 70 percent of the U.S. oil reserves and 61 percent of the natural gas reserves.
After the analysis, Ernst and Young found that from 2004 through 2007 the average cost per barrel of oil equivalent for exploration was $27.22. But in 2008 that cost jumped to $51.96 per barrel. In June, the Houston Chronicle reported that the overall cost of exploration rose to $132.1 billion last year – a 35% hike from 2007.
“This validates that finding oil and gas reserves is very, very expensive,” said Marcello Donadio, Americas Director of Oil & Gas for Ernst and Young LLP.
And, once the exploration process has been completed, the drilling must begin. The Energy Information Administration reports the cost of drilling a natural gas well in 2007 was $3,906,900.
As we all know, 2008 brought a swift downturn in the economy, bringing with it a sharp decline in demand for natural gas. Producers now find a market that is nearing full storage capacity. So, as natural gas prices hover below $4 per 1,000 cubic feet, producers may start finding it increasingly difficult to recoup the expenses of exploration and drilling in the prices they receive for their product.
But one Ernst and Young managing partner says the oil and natural gas industry has made careful and calculated decisions throughout the recession and will rebound quickly once its over.
“When the commodity prices stabilize, the industry should be in a good position,” said Charles Swanson of Ernst and Young. “Compared to the recovery of the last major collapse in the 1980s, today’s oil and gas industry is much leaner, more efficient and better-positioned to take advantage of opportunities during an economic recovery.”
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This validates that finding oil and gas reserves is very, very expensive...
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