"Why Oil Companies Don't Drill"

Theodore Seto, a professor of tax law and policy at Loyola Law School Los Angeles, notes the distortion in the tax code toward investment in oil exploration with "the U.S. tax rate on profits from petroleum and natural gas structures ... the lowest imposed on any type of corporate capital asset":

Why Oil Companies Don't Drill, Understanding Tax: U.S. oil companies are pushing hard to get Congress to allow the current Administration to issue more oil leases before its term expires. In response, skeptics have noted that three-quarters of the 90 million-plus acres of federal land already leased for oil drilling are not being worked. Oil companies deny this. Regardless of who is right, the number of operating oil rigs in North America declined across the course of 2007.

In the meantime, OPEC has raised its quotas by only 20% since 1998 – a measly 2% per year. World GDP grew by about 85% over the same period. The International Energy Agency reports that non-OPEC oil countries are also underproducing and predicts that they will continue to do so.

Everyone seems to be holding back. ... So what to do?

On the tax side, Congress has done almost all it can do to stimulate U.S. production.

A 2005 Congressional Budget Office study concluded that the effective 2002 U.S. tax rate on profits from petroleum and natural gas structures was the lowest imposed on any type of corporate capital asset: 9.2%. Profits from computers, by contrast, were taxed at an effective rate of 36.9%.

A 2000 study by the Institute on Taxation and Economic Policy concluded that in 1998, of all U.S. industries, petroleum and pipeline companies were taxed at the lowest effective rates: 5.7%. Health care companies, by contrast, were taxed at an effective rate of 32%.

If tax incentives were going to induce U.S. oil companies to drill, they probably would have done so by now. Interestingly, Sen. McCain and Sen. Obama both propose to eliminate oil production tax incentives. After all, if oil companies are not responding by increasing production, those breaks are just gifts from you and me to Exxon. ...

Remember that prices are a measure of value. If oil prices are going to be much higher 10 years from now, that means oil will be more valuable then than it is now. Valuable to us.

If so, should it really be our policy to drain U.S. reserves as quickly as possible? Or should our policy be to save at least some of those reserves for the day when gas is $10/gallon?

"just gifts from you and me to Exxon. ..."

Comments

[Storage Costs are Zero]

"If so, should it really be our policy to drain U.S. reserves as quickly as possible? Or should our policy be to save at least some of those reserves for the day when gas is $10/gallon?"

We are not the only nation that this is going to occur to. Why trade irreplaceable oil for bonds that are being inflated or defaulted away. Storing oil in the ground is free, and oil holds its value much better than bonds. Pump only enough oil to meet current needs for recently produced consumer items, and save the oil in the ground for the future.

[Lafayette]

MT: "just gifts from you and me to Exxon. ..."

And, where does a wee bit of that enormous amount of money go? To elect American presidents.

What should we think of Cheney's farsical "Energy Task Force", which consisted, amongst others, of cronies from his days in the Carbon Molecule Industry. People like a certain Kenneth Lay of a company called Enron. The only surprising exception to the Task Force was, quite possibly, the Saudi Arabian ambassador at the time -- but he had other Entry Doors to the White House.

What happened as a result of that Task Force and its report? Nada, niente, rien, nixt, zip. Business as usual, with no change or redirection in National Energy Policy. Which is why Middle East Oil States still have us by the short and curlies. Thank you lead-head, thank you Dick.

Tell me the people whom you frequent ... and I'll tell you who you are. We are all birds of a feather, are we not? And the plumage tells all.

[hari]

What would happen if we've (already) reached Peak Oil prices?
Downsiding consumption and inflationary pressure will inevitably reduce supply volume traded on futures market - thereby affecting spot price of crude. My hunch is after summer, look for prices far below $100/b.

[Lafayette]

hari: Downsiding consumption and inflationary pressure will inevitably reduce supply volume traded on futures market

Or, maybe, increased supply will reduce the future pricing? The commodity is presently in a tight market, which sparked the speculation.

If the supply to market would increase, I doubt the price would descend to $60; but, yes, somewhere higher than $60 and less than a $100.

Who really knows? We're just guessing, aren't we?

[Anspen]

"If so, should it really be our policy to drain U.S. reserves as quickly as possible? Or should our policy be to save at least some of those reserves for the day when gas is $10/gallon?"

Compare the examples of the the UK and the Netherlands. The British pumped out their North Sea oil as fast as they could and are now running out. The Dutch (after doing the same thing during the 70s) limited the amount of natural gas that could be produced from the large Slochteren field and focused on smaller fields to preserve a supply for the future.

[Lafayette]

Mind set sea change

SC&Z: Storing oil in the ground is free, and oil holds its value much better than bonds. Pump only enough oil to meet current needs for recently produced consumer items, and save the oil in the ground for the future.

Perhaps necessary but also insufficient.

America wastes energy. American must be taught to sip instead of guzzle, which entails a sea-change in mind set. It is no easy matter changing age-old bad-habits in a nation of 365 million people.

The way to do it nonetheless is make sure energy guzzlers pay (a premium) and energy sippers don't. This means Carbon Tax and Car Fleet Efficiency Ratings that determine the surtax on the model car, for instance.

In general, it means establish a rating classification for different categories of energy usage -- from a rating for household appliances, to cars, to offices, to residences. That too is no easy program.

In the aggregate, it means incentives for old homes to be insulated by means of tax incentives. It means having a Transportation Strategy that favors collective transport where possible - to the extent of applying a car tax for daily entry into large urban areas. Or, seemingly quirky ideas like the City Hall offering a bike service and bike-ways in the streets for those who don't mind biking to get around. (Sounds crazy? Have a look at Paris, or any large town, the next time you're in France.)

These measures are all being tried in one form or another everywhere. They need, it is suspected, to be all applied.

Or the consequences will not be waiting.

------------------------------------------

Anecdote: A dutch firm is marketing a device attached just between the electrical socket and a machine, that indicates when it has reached its alloted energy usage for any given period of time. So, its a bit like people weighing themselves. But, how much do people weigh themselves? Get the point? ;^)

[ken melvin]

Reserves has been the game for Exxon, Shell, ... for some time now. Seems they understand peak oil quite well.

[hari]

I took the average barrel price from the Congressional testimony by Panel of Experts which ranged between $70-75/b.
We can't really account for the current spot price with any conviction. And since there is no international commodity agreement on crude oil production and supply, including stocks at hand, how do we know if OPEC is not taking us to the laundry? IEA gave its report last week focused simply on consumption.

Out of this oil price crisis, may be, we can focus on forcing a political process with the end game resulting in a regulated international commodity agreement. Otherwise these unplesant market suprises will remain intact for future speculators.

[paine]

"the Carbon Molecule Industry"

laff you surprise me ...jolly phrase !!!!

[paine]

"What would happen if we've (already) reached Peak Oil prices?"
not sure i follow
but when's that stopped me

peak crude oil pricing
or more generally total displacement crude oil pricing

what might that brute look like ??

we ougha have a model or 12
some where in the journals

go fetch my eager ivy laced elves
whil hari and MOI
KEEP
big picturing it up
here on the veranda

[paine]

it occurs to me
if we split the game into drillers pumpers and refiners

the best stage to hold for future production
is at the pre drilling stage
the most profitable exploration is no exploration at all

of course the corporate exploration and drilling system
is not a perfect global cartel so ....

errr or is it ??..or at least operating as if ...

as current contracts rise
'cause expected demand growth leaps
the un known un found pools
become a friend of the rollicking profiteers

[John V]

I hear this a lot these days:

Most of the available land for drilling is unused.

Is there any reason for this? I'm really curious. Said alone, that statement can't tell us very much.

Has been researched and deemed not viable or too expensive to use at present?

I'm just trying to be logical here. Why would oil companies be looking for new oil leases if they have so much available land for drilling?

There's a piece of the puzzle missing here.

[Peter Schaeffer]

All,

Much of this is sooo... lame. In mid-1999, there were 488 rigs operating in the US. Last week there were 1913. See http://files.shareholder.com/downloads/BHI/349812323x0x209517/110356C2-2932-46E7-BB15-F5E1631F460F/US_Rig_Report_062708.xls for the detailed data.

Has world GDP really grown by 85% since 1998? On which planet?

[paine]

ahhh
enter....the shafter!!!!

any one who thinks domestic drilling won't boom..now
is forgetful

but a global exploratory cartel...wouldn't

let's use that construct
as an evil spectral guide

drill we the drillers will
and at a higher less lame rate

in fact the shafter is on the money
where and how much we
the drilling humans drill
has its causal patterns
low priced high clinton years
were poison for drillers an their equipers and servicers

then the hunish five appointed the oil boys into the white house .....

after much ado
out comes...peak a boo pricing

to what extent unrestrained drilling
is a carbon tit
industry "fantasy " or "nitemare"
depends on conjectural circs eh ???

today is it the anarchy
of a gadarene charge toward exploration max ???
is that what the corprate carbon giants
oughta pray for ????

or green fig leafed restraint ???

peak pricing is real
but....
maybe peak oil
is a very nice bottom line figment

[paine]

lets drill boys
but lets not discover too much
right away...
or at least lets not fess to it in public

[Peter Schaeffer]

paine,

Check out http://files.shareholder.com/downloads/BHI/349812323x0x203847/410104CD-668C-4DBD-A561-098A8F79F94D/Worldwide_05-08.xls

The global rig count has gone from a low of 1156 in April of 1999 to 3073 today. The peak was 3417 in February of this year.

All of this is somewhat misleading because well more than half of global rig count is inside the U.S.

The non-U.S. rig count has gone from 656 (May 1999) to 1210 (May 2008).

Under Clinton, energy costs/prices were declining as was oil/gas exploration activity. Greenhouse gas emmissions soared...

Under Bush, all of this has been reversed.

However, politics does not appear to have played a major role in either case... Unless you think Gore was an oil company plant and Cheney was/is obsessed with global warming.

[anne]

http://www.earthpolicy.org/Updates/2008/Update70_data.htm#table6

June 27, 2007

U.S. Carbon Dioxide Emissions from Electricity and Heat Generation, 1990-2005

Coal Oil Gas Total

(Million Tons Carbon)

1990 428.8 32.3 63.5 526.7
1991 428.8 30.1 64.6 525.8
1992 435.5 26.1 67.3 531.7
1993 454.4 29.2 68.0 554.5
1994 457.0 27.8 75.0 562.9

1995 463.1 20.8 81.0 568.2
1996 487.8 22.7 75.4 589.4
1997 500.4 25.3 79.5 608.9
1998 508.1 33.4 88.9 633.9
1999 509.9 31.3 93.1 637.8

2000 534.6 29.3 98.6 665.9
2001 516.9 31.7 99.6 651.7
2002 521.6 24.6 102.8 653.2
2003 531.0 30.3 93.7 658.8
2004 535.3 31.3 99.6 670.1

2005 545.8 31.6 104.2 685.5

[paine]

to be clear
our hypothetical
virtual
global exploration and drilling cartel
would need " ownership "
by a ggodlt chunk of the earth's pumpers
to be
properly incentivized
to "find "
precious little new stuff right away

in the short run
short fall
is king

[piglet]

"A 2005 Congressional Budget Office study concluded that the effective 2002 U.S. tax rate on profits from petroleum and natural gas structures was the lowest imposed on any type of corporate capital asset: 9.2%. Profits from computers, by contrast, were taxed at an effective rate of 36.9%."

I have repeatedly heard the figure of $18B per year in taxpayer subsidies to the oil industry. Is that the tax breaks that the study refers to, or is it on top of them?

"Much of this is sooo... lame. In mid-1999, there were 488 rigs operating in the US. Last week there were 1913." I don't know what that is supposed to prove either way. The number of rigs increased since 1999 because the output per rig decreased. If the number of rigs decreased during 2007, this may be either market manipulation or a result of the drying up of oil fields. The dilemma is that we don't know whether the oil corporations are pumping all they can and there just isn't more, or whether they are deliberately suppressing demand. If we are really worried about the latter, then there is but one solution: get the corporations off our national resources and let the government do the exploitation. The Venezuela solution.

Americans are really amazing. They are so angry about the gas prices but they completely overlook the fact that much (is it 30 or 40%?) of the gas they are pumping is theirs. The people of this country should reap the profit from the oil and gas that is pumped out of their ground. Yet it is politically totally out of the question to even raise the royalties to a decent amount. No other country gives its resources away so cheaply.

Arkansas just increased the severance tax from literally nothing to a tiny little bit, and that was hailed as a major breakthough for the governor. This is a rich country, but people don't seem to care that they are being plundered.

[The Misleader]

Why is Shaeffer using a time period when rigs were at an all-time low as the starting point?

"The depressed oil and gas prices have driven domestic drilling activity down by 36 percent—and worldwide drilling down by 29 percent—since December 1997. In both cases, the number of working rigs is now approaching an all-time low."

You need to measure since the tax changes, not since an all-time low, control for other variables, and see if incremental tax changes have affected drilling.

There's no evidence that recent changes have. That's the point of the article ... but keep trying to mislead people to protect the enshrined energy interests.

[JT]

The best solution for high oil price is...high oil prices.

The free market will take care of this much better than our inept Federal government.

When the hedgies run for the exits on oil the price will crash...

[Peter Schaeffer]

Anne,

Thank you for your most helpful numbers. They show a 2.85% growth rate in CO2 output from 1992 to 2000 versus a 0.58% growth rate from 2000 to 2005...

If you look at total CO2 output (http://www.eia.doe.gov/oiaf/1605/ggrpt/excel/historical_co2.xls) the picture is quite similar. Total U.S. CO2 output grew at a rate of 1.8% from 1992 to 2000 versus 0.122% from 2000 to 2006.

[anne]

"You need to measure since the tax changes, not since an all-time low, control for other variables, and see if incremental tax changes have affected drilling."

Thank you.

"When the hedgies run for the exits on oil the price will crash..."

Bam, bash, smash.

[anne]

"Under Clinton, energy costs/prices were declining as was oil/gas exploration activity. Greenhouse gas emmissions soared...

"Under Bush, all of this has been reversed."

Meaningless idiocy, but carry on.

[hari]

Talking about climate ...my current temp on balcony is still 35C @ 19.33h and I suppose Paine is gulping jugs of liquid(?) on his veranda...or am I mistaken you're out of the sunshine?

Look I'd join you in global exploitation/drilling for *black gold* if the rate per hole can be fixed.

There was a time when I owned Schulumberger stocks because of demand for off-shore drilling and whatnots.

[Peter Schaeffer]

Piglet,

“The number of rigs increased since 1999 because the output per rig decreased”

You need to read some introductory material about how oil (and natural gas) are produced. Drilling rigs don’t produce oil. They drill for oil (and gas). Once a (successful) well is drilled the rig is removed, and pumps (several kinds) are actually used to operate the well (some wells don’t need them).

Stated broadly, drilling rigs are used three ways. First, for exploration. This generally means hunting for new oil fields, but some exploration wells are drilled with no prospect of finding oil, simply to understand the geology of a region. Second, actually developing a field after it is found. This includes real production wells along with others for water/gas injection (to maintain pressure) and monitoring wells (in some cases). Third, rigs are used for “workovers”. This is essentially maintenance on existing wells. However, some workovers include extensive well modifications (fracturing) to improve production.

In other words, rigs don’t produce oil. They are the used to explore for, and develop oil. Stated differently, the rig count is a somewhat decent measure of investment in oil and gas production. Obviously, investment has soared as prices have risen.

As for royalties, they can’t be raised because they are set by contract (with public or private property owners). You may be thinking of severance taxes which can be raised by changes in law.

By the way, I don’t you will impress too many people using Venezuela as a model… Or Mexico… Brazil (Petrobas) has a far better reputation.

Full disclosure note. I have owned Petrobas shares in the past and probably own them now.

[Peter Schaeffer]

misleading,

I have never argued that tax law changes influenced drilling activity in the U.S. or abroad. Indeed, I don't think I would try to make that case of late. Obviously, price changes have dwarfed tax law changes over the last 10 years.

Indeed, the only point I was trying to make is that E&P activity has risen dramatically since the low point in 1999. This is clearly correct.

Anne,

I know I have suggested this before… But why don’t you try to get some data to support your views? Using words like “meaningless idiocy” doesn’t really cut it.

[paine]

shaftster
nice to have u back

we need some high court of corrections type
powdered wigs around here once in a blue moon

the goo goos are livin too easy
off the heavily larded
slow moving herd market moowers
" gist free up that there market and..."

the portfolio babbits
red faced nativists
and sundry stray
tyrolean grifters
could use a purple robed
s'not so head or two

[anne]

What happened during the 1990s and extended to this decade, was that there was a continual shift from coal fired electrical power generation to natural gas fired generation. The shift was pushed from the beginning to lessen enviornmental problems from increased reliance on coal, and the shift away from coal was politically generated from beginning to end, though more so from the Enviornmental Protection Agency during the Clinton years and from state and local and court actions during the Bush years.

Coal generation of electicity is now routinely challenged locally, no matter the EPA stance.

Say what?

[paine]

data data everywhere
and not a solution to think

data the popcorn of settled minds

lets logic chop
and pounce from limb to limb
cheshire smiling all the while

i hear somebody somewhere grumblin

hey senior smug
got any thing worth buying meme wise
or are u just
all about pricking pink bubbles

[paine]

paradoxical has ups
where gore plays cheney and cheney plays gore
serves what end ???

the Devil may live off the details
but He's got a plan

[paine]

sudden huge surge in expected demand

why
who in the towers of houston back in 97
couldn't see this comng ???

finite horizons ???
limited rationality ????

figure what ??
..from drillin to marketable spillin ???

five years ????

the surge could have been met if
the pit of drillin had been a boom time

there's a degree of intertemporal interwoven
mess up here
that
to if you were satisfied to call it
" a simple market failure"
god i hope you'd sound silly to yourself

[Peter Schaeffer]

As always (at least for me), the facts count.

Let's take a look at them. From 1995 (first year available over at http://www.eia.doe.gov/fuelelectric.html) to 2000 coal consumption for power production rose at a rate of 2.94% per year. Gas consumption rose at a rate of 3.73% per year. From 2000 to 2006 coal went up at a rate of 0.67% per year versus 3.19% for gas.

Obviously, Gore must have liked coal a lot more than Cheney does/did.

Total CO2 from power rose at a rate of 3.22% from 1995 to 2000 versus 0.12% from 2000 to 2006. Again Bush/Cheney come way out ahead. Got to hand it to those Republican environmentalists versus those dirty Democrats.

The EIA data also covers S02 and NOX. SO2 barely declined from 1995 to 2000 (11896 to 11297) but fell dramaticaly after Bush took office (11297 to 9524). By contrast, NOX declined more from 1995 to 2000 (7885 to 5380) than from 2000 to 2006 (5380 to 3799).

[Peter Schaeffer]

paine,

I admire your style, but I have trouble understanding you... Which is why I have difficulty replying.

However, some rebound in the Houston economy has been reported. See "Houston, We Have No Problems" (http://www.slate.com/id/2193959/). Conversely, the Houston boom is tiny compared to the 1970s when Houston had dozens of helicopter taxi servies. Every single one failed in the 1980s crash. None are operating now (at least according to Google).

[anne]

"Obviously, Gore must have liked coal a lot more than Cheney does/did."

Lie on, lie on, the practice will help obviously.

[Stick out your thumb]

Shaff is hijacking this thread.

If anything, his stats show that it was expected future price that determined drilling, that if anything tax cuts dstorted investment, future price expectations were plenty of incentive, and it's unlikely that recent or further tax cuts would mke a difference given how low tax rates are already.

But he wants to take all of you somewhere else.

[Peter Schaeffer]

Stick out your thumb,

Expected future prices are notionally captured by the futures market, particularly what are called "strips". A traditional futures market is based on delivery of a specific quantity of a commodity on a specific future date. A "strip" calls for continuous delivery of a commodity (oil or gas) over a period of years.

Back in 1999, the futures market did not predict current oil and gas prices. The same holds for the futures market in 2003 or later. With some (important) exceptions, the futures market tends to track current spot prices. The exceptions have been covered here (in considerable detail) by our host and others.

The only point I have tried to make here is that drilling has tracked prices (contra T. Seto). I have specifically not argued for or against any energy tax law changes other than to point out their insignificance compared to price changes.

Of course, I have shot down a few minor claims about greenhouse gases, world GDP growth, etc.

If you think I have tried to take this thread somewhere else, please tell me where that would be.

[evagrius]

Ol' Nick always provides good stats to prove his view.

[piglet]

Thanks for the correction on rigs, Peter Schaeffer. If it is true that exploration activity has increased (albeit from an all-time low), then it would be interesting to see how successful that activity was.

The point I am making is this: the US is an oil-rich country and one of the world's biggest producers (albeit past its peak). Oil-rich countries should actually benefit from higher oil prices. Of course, domestic production doesn't come close to cover demand but if you produce 30 or 40% of your own demand (what's the exact figure again?), that's something. Other countries, like Germany, don't have a drop of oil of their own. They are completely dependent on the world market. In the US, we consumers pay the corporations world market prices just to pump our own oil out of our own ground, and then we also give them tax breaks on their profits. This is what I don't understand.

I concede that I have no in-depth knowledge of the structure of royalties/severance taxes etc. in the US but I have followed the discussion in Arkansas, where the natural gas severance tax has been fixed 50 years ago at close to zero *in the constitution*. Can you believe that people would vote to give up their ownership to their own resources? People have absolutely no grasp of the concept that natural resources belong to them, and that corporations *owe* them a decent payment for exploiting them (not to mention that tax-payers have to pay for all the infrastructure that the corporations need). Am I really the only one to notice?

[Patricia Shannon]

Vampire Clan
copyright Louise Bennett 1995

We are a vampire clan,
sucking blood from the earth,
as if the earth could plan
for infinite vampire births.

Sucking blood from the earth,
some say the land will die,
for infinite vampire births
cannot sustain themselves. Why?

Some say the land will die,
the children have nothing,
and cannot sustain them selves. Why?
Should we take a stand?

The children have nothing,
we take more than we replace.
Should we take a stand,
are we not a human race?

We take more than we replace
as if the earth could plan.
Are we not a human race?
We are a vampire clan

[Lafayette]

hari: Out of this oil price crisis, may be, we can focus on forcing a political process with the end game resulting in a regulated international commodity agreement.

Much as this seems a good notion, I wonder if it escapes the problem that the market speculation mechanism provoked the commodity price crisis – not necessarily commodity scarcity all by itself, though it was a factor.

European governments are seriously talking of regulating the market mechanism that spawns excessive speculation – which is anathema to America’s BigFinance.

Any thoughts?

[Lafayette]

Lame is as lame does

PS: Much of this is sooo... lame. In mid-1999, there were 488 rigs operating in the US. Last week there were 1913.

OK, now please give us the average yield per rig.

Thanks in advance.

NB: Whilst researching the answer, consider this (from here) for starters: Alaska accounts for 25% of the oil produced in the United States. Daily average yield of an oil well at full production in Alaska’s Prudhoe Bay is 10,000 barrels. In the other 48 states, the average is only 11 barrels.

[hari]

Watch the final declaration from G-8 meeting in Japan.

I am sure it will have something on oil prices and global inflation. US/Fed are trying to bump the problem of inflation
on emerging markets...instead of cleaning their own backyard after profligating these past two or more decades....on credit from SWFs.

[anne]

http://www.earthpolicy.org/Updates/2007/Update67_data.htm#table9

September 4, 2007

Selected Pre- and Post-Peak Oil-Producing Countries, 2006

(Million Barrels per Day)

Post-Peak

United States 5.14
Iran 4.03
Kuwait 2.54
Venezuela 2.51
Norway 2.49
Libya 1.68
United Kingdom 1.49
Indonesia 1.02
Oman 0.74
Egypt 0.64
Australia 0.43

Pre-Peak

Russia 9.25
United Arab Emirates 2.64
Canada 2.53
Nigeria 2.44
Algeria 1.81
Brazil 1.72
Angola 1.41
Kazakhstan 1.31
Qatar 0.85

Possibly Peaking

Saudi Arabia 9.15
China 3.69
Mexico 3.26

Note: Oil production includes crude oil and lease condensate.

[anne]

http://www.earthpolicy.org/Updates/2007/Update67_data.htm#table8

September 4, 2007

Top Twenty Oil Producing Countries, 2006

(Million Barrels per Day)

1 Russia 9.25
2 Saudi Arabia 9.15
3 United States 5.14
4 Iran 4.03
5 China 3.69

6 Mexico 3.26
7 United Arab Emirates 2.64
8 Kuwait 2.54
9 Canada 2.53
10 Venezuela 2.51

11 Norway 2.49
12 Nigeria 2.44
13 Iraq 2.00
14 Algeria 1.81
15 Brazil 1.72

16 Libya 1.68
17 United Kingdom 1.49
18 Angola 1.41
19 Kazakhstan 1.31
20 Indonesia 1.02

Note: Oil production includes crude oil and lease condensate.

[anne]

http://www.earthpolicy.org/Updates/2007/Update67_data.htm#table10

November 6, 2007

Top Twenty Oil Consuming Countries, 2006

(Million Barrels per Day)

1 United States 20.69
2 China 7.27
3 Japan 5.16
4 Russia 2.92
5 Germany 2.66

6 India 2.50
7 Canada 2.24
8 Brazil 2.23
9 South Korea 2.17
10 Saudi Arabia 2.14

11 Mexico 2.00
12 France 1.96
13 United Kingdom 1.83
14 Italy 1.73
15 Iran 1.66

16 Spain 1.59
17 Indonesia 1.22
18 Netherlands 1.01
19 Taiwan 0.95
20 Thailand 0.93

[Peter Schaeffer]

Lafayette,

"OK, now please give us the average yield per rig."

Oil rigs (drilling rigs) don't produce oil (meaning oil or natural gas). See my very, very basic explanation of oil prouction above.

[Peter Schaeffer]

Piglet,

You asked a pretty good question. What good is all the money going into E&P (Exploration and Production) doing? The answer appears to be “quite a bit”. From some general reading I knew that U.S. natural gas production was rising and LNG imports declining (how is that for a shock). However, I really didn’t have any actual data.

See “Is U.S. natural gas production increasing?” (http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm). A useful quote

“Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.”

Take a look at the chart of U.S. gas production. All that drilling appears to be paying off. Some of the statistics are amazing. In May of 2008, 519 rigs were drilling horizontal gas wells in the U.S. That is 1 out of 6 rigs in the entire world. As I have mentioned before, more than half of all of the world’s rigs are now operating in the U.S. A caveat is needed here. The average foreign rig is probably bigger, more likely to be offshore, and is on average going to find/develop more oil/gas than a rig in the U.S.

At current prices, the U.S. could well develop gas surpluses eliminating the need for LNG imports and perhaps meet its own gas requirements for years to come. Of course, current gas prices are very high and a huge burden on consumers.

A more general note might be, that without domestic oil/gas production, the U.S. trade deficit would be astoundingly higher. Not merely would we have to import all of our oil, but oil consumption would be much higher to replace natural gas.

[Peter Schaeffer]

Lafayette,

Alaska accounts for 13.6% of U.S. oil production. See http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_m.htm for the numbers.

Alaska (total, not just Prudhoe Bay) produces 700KBD of oil. Since Prudhoe alone has more than 1000 wells, per-well production must be far below 10KBD. See http://en.wikipedia.org/wiki/Prudhoe_Bay_oil_field, http://www.washingtonpost.com/wp-dyn/content/article/2005/06/06/AR2005060601742_pf.html, Alaskan state statistics show that 2,867 wells have been drilled at Prudhoe Bay. Of course, not all of them were ever intended to produce oil (gas injection, water injection, monitoring, etc.).

[speakertim]

Shaeffer, I stumbled across this website while searching for information on why oil companies don't drill more, if in fact they don't. In trying to understand the issue and "who's to blame" I want to thank you for giving facts and figures, sited, instead of just an opinion not based on facts. I'm not really sure why you are treated with such disdain as I have not seen you bring your own political views into the discussion. The facts and nothing but the facts.

Why are so many people affraid of the facts? They exist, they can not be denied, although it seems most people, on either side of an issue, will try to dismiss those that do not agree with ones opinion.

I can see by some of the other posts here that a few of you have strong opinions on what and who the problems are that face this nation, but I am heartened by the notion that there still are people out there that look for the facts and wait to base an opinion until all the facts have been anylized.

Props Peter.

[Patricia Shannon]

Anybody else notice that there is a big overlap between the following sets of people

(1) Those who say people should be frugal and save for the future. If they can't or won't, they should be allowed to starve to death.

(2) Those who think we should use up oil and other energy source as fast as possible, and have faith that science will come up with solutions to problems caused by doing that.

[Puff the not so magic whatever]

Don't let Shaeffer blow smoke up your whatever.

Go to the DOE website, download the data, and look through it yourself. It's really simple. If the author means offshore rigs in operation, he's right, they declined in 2007 (and that was what all the furor was about). If it's onshore, then rigs in operation, they are up. But they are nowhere near where they were in earlier years.

It's all right here: http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

Note, however, this is both natural gas and oil (and only "rotary"). Oil alone follows:

The columns, in order, are
1. Date
2. U.S. Onshore Crude Oil and Natural Gas Rotary Rigs in Operation (Count)
3. U.S. Offshore Crude Oil and Natural Gas Rotary Rigs in Operation (Count)
4. Total

Jan-1973 1120 99 1219
Feb-1973 1037 89 1126
Mar-1973 959 90 1049
Apr-1973 914 79 993
May-1973 974 72 1046
Jun-1973 1042 76 1118
Jul-1973 1075 81 1156
Aug-1973 1140 82 1222
Sep-1973 1183 83 1266
Oct-1973 1250 84 1334
Nov-1973 1304 86 1390
Dec-1973 1318 87 1405
Jan-1974 1283 89 1372
Feb-1974 1264 91 1355
Mar-1974 1272 95 1367
Apr-1974 1280 101 1381
May-1974 1319 94 1413
Jun-1974 1342 90 1432
Jul-1974 1387 93 1480
Aug-1974 1426 92 1518
Sep-1974 1437 90 1527
Oct-1974 1493 91 1584
Nov-1974 1497 99 1596
Dec-1974 1540 103 1643
Jan-1975 1521 94 1615
Feb-1975 1518 93 1611
Mar-1975 1549 102 1651
Apr-1975 1503 102 1605
May-1975 1490 102 1592
Jun-1975 1507 106 1613
Jul-1975 1508 109 1617
Aug-1975 1533 112 1645
Sep-1975 1586 113 1699
Oct-1975 1604 112 1716
Nov-1975 1644 113 1757
Dec-1975 1677 116 1793
Jan-1976 1588 123 1711
Feb-1976 1468 126 1594
Mar-1976 1408 132 1540
Apr-1976 1356 124 1480
May-1976 1375 121 1496
Jun-1976 1426 120 1546
Jul-1976 1465 132 1597
Aug-1976 1563 128 1691
Sep-1976 1618 126 1744
Oct-1976 1666 128 1794
Nov-1976 1703 137 1840
Dec-1976 1716 145 1861
Jan-1977 1704 146 1850
Feb-1977 1690 166 1856
Mar-1977 1724 163 1887
Apr-1977 1745 162 1907
May-1977 1813 169 1982
Jun-1977 1839 169 2008
Jul-1977 1851 172 2023
Aug-1977 1888 178 2066
Sep-1977 1906 178 2084
Oct-1977 1932 169 2101
Nov-1977 1945 168 2113
Dec-1977 1973 168 2141
Jan-1978 1956 172 2128
Feb-1978 1954 181 2135
Mar-1978 1979 180 2159
Apr-1978 2016 182 2198
May-1978 2066 183 2249
Jun-1978 2103 184 2287
Jul-1978 2122 185 2307
Aug-1978 2127 198 2325
Sep-1978 2138 194 2332
Oct-1978 2156 190 2346
Nov-1978 2169 187 2356
Dec-1978 2098 188 2286
Jan-1979 1992 207 2199
Feb-1979 1858 206 2064
Mar-1979 1768 203 1971
Apr-1979 1736 207 1943
May-1979 1762 198 1960
Jun-1979 1794 205 1999
Jul-1979 1889 205 2094
Aug-1979 2014 208 2222
Sep-1979 2069 215 2284
Oct-1979 2169 211 2380
Nov-1979 2255 205 2460
Dec-1979 2336 216 2552
Jan-1980 2352 219 2571
Feb-1980 2397 216 2613
Mar-1980 2439 219 2658
Apr-1980 2461 222 2683
May-1980 2568 229 2797
Jun-1980 2615 235 2850
Jul-1980 2718 235 2953
Aug-1980 2810 235 3045
Sep-1980 2868 231 3099
Oct-1980 2917 232 3149
Nov-1980 2973 247 3220
Dec-1980 3036 250 3286
Jan-1981 3141 245 3386
Feb-1981 3268 234 3502
Mar-1981 3343 252 3595
Apr-1981 3472 256 3728
May-1981 3568 249 3817
Jun-1981 3680 246 3926
Jul-1981 3736 262 3998
Aug-1981 3867 264 4131
Sep-1981 3976 266 4242
Oct-1981 4088 264 4352
Nov-1981 4166 270 4436
Dec-1981 4238 283 4521
Jan-1982 4156 280 4436
Feb-1982 3891 269 4160
Mar-1982 3554 262 3816
Apr-1982 3209 251 3460
May-1982 2927 251 3178
Jun-1982 2660 248 2908
Jul-1982 2504 242 2746
Aug-1982 2385 235 2620
Sep-1982 2255 228 2483
Oct-1982 2173 229 2402
Nov-1982 2286 214 2500
Dec-1982 2482 214 2696
Jan-1983 2404 218 2622
Feb-1983 1976 216 2192
Mar-1983 1793 210 2003
Apr-1983 1633 213 1846
May-1983 1717 209 1926
Jun-1983 1777 202 1979
Jul-1983 1861 178 2039
Aug-1983 1975 181 2156
Sep-1983 2077 175 2252
Oct-1983 2205 177 2382
Nov-1983 2413 159 2572
Dec-1983 2570 210 2780
Jan-1984 2450 216 2666
Feb-1984 2221 202 2423
Mar-1984 2047 198 2245
Apr-1984 1917 203 2120
May-1984 2075 202 2277
Jun-1984 2158 205 2363
Jul-1984 2180 206 2386
Aug-1984 2201 216 2417
Sep-1984 2206 214 2420
Oct-1984 2269 223 2492
Nov-1984 2397 232 2629
Dec-1984 2471 242 2713
Jan-1985 2210 242 2452
Feb-1985 1955 233 2188
Mar-1985 1732 223 1955
Apr-1985 1667 210 1877
May-1985 1665 200 1865
Jun-1985 1653 203 1856
Jul-1985 1715 194 1909
Aug-1985 1734 197 1931
Sep-1985 1733 197 1930
Oct-1985 1684 195 1879
Nov-1985 1725 187 1912
Dec-1985 1760 190 1950
Jan-1986 1635 175 1810
Feb-1986 1280 164 1444
Mar-1986 1007 132 1139
Apr-1986 794 112 906
May-1986 687 94 781
Jun-1986 632 73 705
Jul-1986 621 65 686
Aug-1986 665 65 730
Sep-1986 681 74 755
Oct-1986 739 80 819
Nov-1986 820 79 899
Dec-1986 874 89 963
Jan-1987 812 88 900
Feb-1987 743 75 818
Mar-1987 696 76 772
Apr-1987 681 73 754
May-1987 687 76 763
Jun-1987 703 85 788
Jul-1987 804 97 901
Aug-1987 894 109 1003
Sep-1987 987 114 1101
Oct-1987 1008 116 1124
Nov-1987 1034 118 1152
Dec-1987 1034 128 1162
Jan-1988 949 127 1076
Feb-1988 853 123 976
Mar-1988 832 119 951
Apr-1988 800 117 917
May-1988 768 123 891
Jun-1988 773 124 897
Jul-1988 786 126 912
Aug-1988 807 123 930
Sep-1988 805 122 927
Oct-1988 801 122 923
Nov-1988 789 129 918
Dec-1988 797 127 924
Jan-1989 731 110 841
Feb-1989 667 95 762
Mar-1989 660 93 753
Apr-1989 679 92 771
May-1989 662 92 754
Jun-1989 692 103 795
Jul-1989 718 114 832
Aug-1989 772 114 886
Sep-1989 848 107 955
Oct-1989 878 106 984
Nov-1989 922 119 1041
Dec-1989 948 117 1065
Jan-1990 885 113 998
Feb-1990 806 105 911
Mar-1990 797 108 905
Apr-1990 824 111 935
May-1990 841 120 961
Jun-1990 886 113 999
Jul-1990 902 108 1010
Aug-1990 879 108 987
Sep-1990 935 107 1042
Oct-1990 974 99 1073
Nov-1990 1031 106 1137
Dec-1990 1035 101 1136
Jan-1991 977 91 1068
Feb-1991 896 88 984
Mar-1991 848 81 929
Apr-1991 770 95 865
May-1991 721 98 819
Jun-1991 774 93 867
Jul-1991 764 80 844
Aug-1991 735 68 803
Sep-1991 704 71 775
Oct-1991 727 68 795
Nov-1991 736 72 808
Dec-1991 731 65 796
Jan-1992 654 56 710
Feb-1992 618 51 669
Mar-1992 594 54 648
Apr-1992 587 55 642
May-1992 591 47 638
Jun-1992 577 44 621
Jul-1992 628 48 676
Aug-1992 635 51 686
Sep-1992 672 45 717
Oct-1992 750 53 803
Nov-1992 822 60 882
Dec-1992 867 59 926
Jan-1993 752 72 824
Feb-1993 615 69 684
Mar-1993 549 62 611
Apr-1993 543 69 612
May-1993 564 73 637
Jun-1993 612 83 695
Jul-1993 656 85 741
Aug-1993 710 87 797
Sep-1993 759 89 848
Oct-1993 767 93 860
Nov-1993 769 99 868
Dec-1993 754 103 857
Jan-1994 690 99 789
Feb-1994 659 95 754
Mar-1994 636 99 735
Apr-1994 617 106 723
May-1994 612 104 716
Jun-1994 643 113 756
Jul-1994 664 107 771
Aug-1994 671 95 766
Sep-1994 712 97 809
Oct-1994 723 99 822
Nov-1994 729 106 835
Dec-1994 709 107 816
Jan-1995 642 106 748
Feb-1995 613 100 713
Mar-1995 575 90 665
Apr-1995 587 91 678
May-1995 579 100 679
Jun-1995 578 96 674
Jul-1995 619 104 723
Aug-1995 642 103 745
Sep-1995 662 103 765
Oct-1995 656 105 761
Nov-1995 668 104 772
Dec-1995 654 109 763
Jan-1996 598 111 709
Feb-1996 598 102 700
Mar-1996 618 96 714
Apr-1996 628 113 741
May-1996 648 116 764
Jun-1996 662 112 774
Jul-1996 677 107 784
Aug-1996 703 108 811
Sep-1996 702 109 811
Oct-1996 728 108 836
Nov-1996 741 107 848
Dec-1996 736 116 852
Jan-1997 712 110 822
Feb-1997 742 107 849
Mar-1997 770 127 897
Apr-1997 775 126 901
May-1997 804 120 924
Jun-1997 855 121 976
Jul-1997 844 125 969
Aug-1997 868 125 993
Sep-1997 881 128 1009
Oct-1997 875 121 996
Nov-1997 857 126 983
Dec-1997 884 129 1013
Jan-1998 860 133 993
Feb-1998 835 139 974
Mar-1998 796 136 932
Apr-1998 748 138 886
May-1998 722 133 855
Jun-1998 726 128 854
Jul-1998 695 121 816
Aug-1998 674 118 792
Sep-1998 656 118 774
Oct-1998 623 111 734
Nov-1998 579 109 688
Dec-1998 545 102 647
Jan-1999 483 104 587
Feb-1999 441 101 542
Mar-1999 420 106 526
Apr-1999 397 99 496
May-1999 414 102 516
Jun-1999 458 100 558
Jul-1999 489 99 588
Aug-1999 533 106 639
Sep-1999 587 109 696
Oct-1999 630 111 741
Nov-1999 663 119 782
Dec-1999 676 122 798
Jan-2000 650 125 775
Feb-2000 641 122 763
Mar-2000 649 124 773
Apr-2000 680 125 805
May-2000 705 139 844
Jun-2000 739 139 878
Jul-2000 784 158 942
Aug-2000 828 159 987
Sep-2000 865 146 1011
Oct-2000 908 147 1055
Nov-2000 916 151 1067
Dec-2000 950 147 1097
Jan-2001 944 174 1118
Feb-2001 973 163 1136
Mar-2001 996 167 1163
Apr-2001 1037 169 1206
May-2001 1063 171 1234
Jun-2001 1107 163 1270
Jul-2001 1121 157 1278
Aug-2001 1105 147 1252
Sep-2001 1049 144 1193
Oct-2001 978 133 1111
Nov-2001 866 134 1000
Dec-2001 778 123 901
Jan-2002 741 126 867
Feb-2002 702 123 825
Mar-2002 649 114 763
Apr-2002 645 105 750
May-2002 721 105 826
Jun-2002 732 110 842
Jul-2002 740 111 851
Aug-2002 737 111 848
Sep-2002 746 114 860
Oct-2002 740 111 851
Nov-2002 725 109 834
Dec-2002 742 114 856
Jan-2003 743 111 854
Feb-2003 797 110 907
Mar-2003 836 105 941
Apr-2003 877 106 983
May-2003 921 113 1034
Jun-2003 958 109 1067
Jul-2003 974 107 1081
Aug-2003 979 111 1090
Sep-2003 984 109 1093
Oct-2003 997 105 1102
Nov-2003 1005 106 1111
Dec-2003 1010 104 1114
Jan-2004 1001 100 1101
Feb-2004 1020 99 1119
Mar-2004 1041 94 1135
Apr-2004 1058 93 1151
May-2004 1068 96 1164
Jun-2004 1080 96 1176
Jul-2004 1116 97 1213
Aug-2004 1139 95 1234
Sep-2004 1148 92 1240
Oct-2004 1145 95 1240
Nov-2004 1160 102 1262
Dec-2004 1140 106 1246
Jan-2005 1153 102 1255
Feb-2005 1170 106 1276
Mar-2005 1209 97 1306
Apr-2005 1241 93 1334
May-2005 1229 91 1320
Jun-2005 1259 96 1355
Jul-2005 1297 101 1398
Aug-2005 1333 102 1435
Sep-2005 1360 91 1451
Oct-2005 1392 87 1479
Nov-2005 1402 84 1486
Dec-2005 1393 77 1470
Jan-2006 1396 77 1473
Feb-2006 1455 79 1534
Mar-2006 1464 88 1552
Apr-2006 1502 95 1597
May-2006 1536 100 1636
Jun-2006 1570 95 1665
Jul-2006 1587 94 1681
Aug-2006 1639 99 1738
Sep-2006 1646 93 1739
Oct-2006 1644 90 1734
Nov-2006 1620 87 1707
Dec-2006 1634 84 1718
Jan-2007 1630 84 1714
Feb-2007 1651 85 1736
Mar-2007 1667 81 1748
Apr-2007 1675 75 1750
May-2007 1671 77 1748
Jun-2007 1692 79 1771
Jul-2007 1698 79 1777
Aug-2007 1731 73 1804
Sep-2007 1718 65 1783
Oct-2007 1713 49 1762
Nov-2007 1737 61 1798
Dec-2007 1749 62 1811
Jan-2008 1690 60 1750
Feb-2008 1709 56 1765
Mar-2008 1737 60 1797
Apr-2008 1765 64 1829
May-2008 1794 68 1862

Next the data for just oil rigs in operation, on or offshore - they too are way down historically:

Aug-1987 626
Sep-1987 713
Oct-1987 727
Nov-1987 746
Dec-1987 746
Jan-1988 663
Feb-1988 575
Mar-1988 582
Apr-1988 567
May-1988 562
Jun-1988 554
Jul-1988 568
Aug-1988 565
Sep-1988 512
Oct-1988 518
Nov-1988 490
Dec-1988 507
Jan-1989 455
Feb-1989 392
Mar-1989 407
Apr-1989 427
May-1989 431
Jun-1989 423
Jul-1989 432
Aug-1989 437
Sep-1989 460
Oct-1989 493
Nov-1989 532
Dec-1989 541
Jan-1990 514
Feb-1990 492
Mar-1990 478
Apr-1990 484
May-1990 493
Jun-1990 498
Jul-1990 497
Aug-1990 506
Sep-1990 566
Oct-1990 588
Nov-1990 615
Dec-1990 643
Jan-1991 633
Feb-1991 564
Mar-1991 520
Apr-1991 469
May-1991 430
Jun-1991 483
Jul-1991 472
Aug-1991 451
Sep-1991 433
Oct-1991 433
Nov-1991 457
Dec-1991 469
Jan-1992 400
Feb-1992 378
Mar-1992 381
Apr-1992 370
May-1992 358
Jun-1992 343
Jul-1992 349
Aug-1992 334
Sep-1992 345
Oct-1992 392
Nov-1992 418
Dec-1992 397
Jan-1993 335
Feb-1993 311
Mar-1993 315
Apr-1993 320
May-1993 323
Jun-1993 350
Jul-1993 368
Aug-1993 397
Sep-1993 418
Oct-1993 441
Nov-1993 453
Dec-1993 425
Jan-1994 356
Feb-1994 337
Mar-1994 323
Apr-1994 314
May-1994 320
Jun-1994 331
Jul-1994 341
Aug-1994 320
Sep-1994 325
Oct-1994 342
Nov-1994 361
Dec-1994 354
Jan-1995 325
Feb-1995 326
Mar-1995 322
Apr-1995 328
May-1995 325
Jun-1995 301
Jul-1995 301
Aug-1995 327
Sep-1995 333
Oct-1995 332
Nov-1995 330
Dec-1995 325
Jan-1996 295
Feb-1996 283
Mar-1996 286
Apr-1996 286
May-1996 288
Jun-1996 298
Jul-1996 290
Aug-1996 297
Sep-1996 301
Oct-1996 328
Nov-1996 363
Dec-1996 361
Jan-1997 342
Feb-1997 356
Mar-1997 377
Apr-1997 373
May-1997 379
Jun-1997 396
Jul-1997 382
Aug-1997 409
Sep-1997 392
Oct-1997 390
Nov-1997 354
Dec-1997 361
Jan-1998 380
Feb-1998 380
Mar-1998 327
Apr-1998 291
May-1998 272
Jun-1998 267
Jul-1998 264
Aug-1998 226
Sep-1998 215
Oct-1998 214
Nov-1998 190
Dec-1998 155
Jan-1999 125
Feb-1999 117
Mar-1999 114
Apr-1999 125
May-1999 136
Jun-1999 124
Jul-1999 108
Aug-1999 111
Sep-1999 130
Oct-1999 137
Nov-1999 145
Dec-1999 161
Jan-2000 143
Feb-2000 147
Mar-2000 173
Apr-2000 196
May-2000 199
Jun-2000 201
Jul-2000 208
Aug-2000 206
Sep-2000 199
Oct-2000 212
Nov-2000 234
Dec-2000 242
Jan-2001 239
Feb-2001 237
Mar-2001 248
Apr-2001 247
May-2001 235
Jun-2001 219
Jul-2001 219
Aug-2001 219
Sep-2001 220
Oct-2001 198
Nov-2001 174
Dec-2001 147
Jan-2002 141
Feb-2002 144
Mar-2002 144
Apr-2002 136
May-2002 134
Jun-2002 138
Jul-2002 133
Aug-2002 125
Sep-2002 122
Oct-2002 140
Nov-2002 146
Dec-2002 137
Jan-2003 132
Feb-2003 153
Mar-2003 171
Apr-2003 185
May-2003 167
Jun-2003 152
Jul-2003 153
Aug-2003 153
Sep-2003 154
Oct-2003 158
Nov-2003 158
Dec-2003 153
Jan-2004 143
Feb-2004 153
Mar-2004 164
Apr-2004 154
May-2004 156
Jun-2004 164
Jul-2004 170
Aug-2004 170
Sep-2004 166
Oct-2004 171
Nov-2004 183
Dec-2004 180
Jan-2005 178
Feb-2005 192
Mar-2005 186
Apr-2005 171
May-2005 150
Jun-2005 146
Jul-2005 170
Aug-2005 206
Sep-2005 210
Oct-2005 217
Nov-2005 253
Dec-2005 247
Jan-2006 242
Feb-2006 209
Mar-2006 244
Apr-2006 259
May-2006 261
Jun-2006 285
Jul-2006 298
Aug-2006 316
Sep-2006 305
Oct-2006 288
Nov-2006 288
Dec-2006 281
Jan-2007 270
Feb-2007 266
Mar-2007 282
Apr-2007 285
May-2007 282
Jun-2007 283
Jul-2007 285
Aug-2007 306
Sep-2007 302
Oct-2007 321
Nov-2007 341
Dec-2007 338
Jan-2008 321
Feb-2008 331
Mar-2008 343
Apr-2008 358
May-2008 375

[RoySV]

Everyone seems to be holding back. ... So what to do?
Huh? So this sort of high-school level remark qualifies as a major premise to advocate economic policy? No wonder economists get laughed at regularly.

How about a plain approach to the situation:
1. If the companies are not drilling it's because they don't have good prospects to pay off at projected prices.
2. If #1 is true (and it should axiomatically be so) then the only way to get more drilling is to directly subsidize it (even more than all the free federal land, tax and investment breaks etc. already do!

3. Can we really just get a grip and notice that there isn't that much more to be found? Further, the best prospects are already held by national (non-US) companies.

4. We need to conserve our way to a better place. Duh ;*)

5. Just an introduction: http://www.theoildrum.com/node/4074

[anne]

Puff, thank you.

[anne]

http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

U.S. Oil and Gas Rotary Rigs in Operation: Onshore, Offshore, Total

(Count)

Jan-1973 1120 99 1219
Jan-1974 1283 89 1372

Jan-1975 1521 94 1615
Jan-1976 1588 123 1711
Jan-1977 1704 146 1850
Jan-1978 1956 172 2128
Jan-1979 1992 207 2199

Jan-1980 2352 219 2571
Jan-1981 3141 245 3386
Jan-1982 4156 280 4436
Jan-1983 2404 218 2622
Jan-1984 2450 216 2666

Jan-1985 2210 242 2452
Jan-1986 1635 175 1810
Jan-1987 812 88 900
Jan-1988 949 127 1076
Jan-1989 731 110 841

Jan-1990 885 113 998
Jan-1991 977 91 1068
Jan-1992 654 56 710
Jan-1993 752 72 824
Jan-1994 690 99 789

Jan-1995 642 106 748
Jan-1996 598 111 709
Jan-1997 712 110 822
Jan-1998 860 133 993
Jan-1999 483 104 587

Jan-2000 650 125 775
Jan-2001 944 174 1118
Jan-2002 741 126 867
Jan-2003 743 111 854
Jan-2004 1001 100 1101

Jan-2005 1153 102 1255
Jan-2006 1396 77 1473
Jan-2007 1630 84 1714

Jan-2008 1690 60 1750

U.S. Oil Rigs in Operation: Total

Jan-1988 663
Jan-1989 455

Jan-1990 514
Jan-1991 633
Jan-1992 400
Jan-1993 335
Jan-1994 356

Jan-1995 325
Jan-1996 295
Jan-1997 342
Jan-1998 380
Jan-1999 125

Jan-2000 143
Jan-2001 239
Jan-2002 141
Jan-2003 132
Jan-2004 143

Jan-2005 178
Jan-2006 242
Jan-2007 270
Jan-2008 321

[Lafayette]

Puff: If the author means offshore rigs in operation, he's right, they declined in 2007 (and that was what all the furor was about). If it's onshore

Rigs Schmigs, it's not the number that count but the yield.

If the number of American cars on the road was an example of an advanced personal transport system, does that mean they have excellent mileage? Of course not.

A yield of 11 barrels a day means an exhausted national energy resource even if tripled -- unless every American had a "rig" in their back yard, processed the oil into gas and used it personally.

[Lafayette]

RSV: If #1 is true (and it should axiomatically be so) then the only way to get more drilling is to directly subsidize it

I would have thought just the opposite. Given the subsidies that do not seem to incentivize drilling, let's stop them and watch how the companies make their profit numbers.

It would exacerbate the supply situation, admittedly, but it would also prompt the companies to drill more. Subsidizing profitable companies to drill for oil is INSANE. Investing in technological development for extracting more from existing fields is not.

Puffing profits by subsidizing drilling (aka Corporate Welfare) helped only top management, who were delighted to exercise their fat stock-options and get rich. Whilst we paid at the pump and through the nose.

Did it bring in that much more oil. Let's see the numbers.

[Peter Schaeffer]

Patricia Shannon,

I think you meant that there is little or no overlap...

[Peter Schaeffer]

All,

The data I presented earlier was a set of rig counts from 1999 to present showing that drilling activity has grown quite a bit, since the 1999 low point. Notably, U.S. drilling activity has grown considerably more than non-U.S. drilling. I will offer some theories as to why later.

There is certainly drilling data going back well before 1999. The EIA and Baker / Hughes make this data available. So far I have used rig counts to show that drilling activity has revived strongly since prices rose.

However, other measures show the same trend. Over at http://tonto.eia.doe.gov/dnav/pet/pet_crd_wellfoot_s1_a.htm you can get total feet drilled going back to 1949. In 1949 that was 135.62 million. In the 1950s oil boom, total feet drilled peaked at 226.2 million. This number hit bottom in the oil E&P crash (U.S. not global) in 1971 at 127.3 million.

When energy prices soared in the 1970s, so did drilling peaking at 415.5 million in 1981 and then crashing to 94.6 million in 1999 (the low point). Drilling in 2007 was up to 308.1 million feet, a more than three fold jump.

Of course, not all wells are created equal. An offshore (U.S.) foot drilled will produce much more oil/gas on average than a foot drilled onshore. There are two reasons for this. First, offshore acreage is fresher (less heavily drilled) than onshore. Second, costs offshore are much higher so the geology has to be much more likely to be productive to justify drilling at all. This caveat applies to “feet drilled” and rig counts.

The much greater increase in drilling in the U.S. versus outside of the U.S. reflects two factors (at least). The U.S. has higher costs (per prospective barrel or MCF of gas) because it has already been heavily drilled. As a higher cost exploration target, you would expect U.S. drilling to be more price sensitive. Second, most mineral resources in the U.S. (onshore) are privately owned making the overall E&P process much more flexible.

Disclosure note. I mentioned earlier that I own energy stocks including (probably) Petrobas. I also worked in the energy business many decades ago.

[Peter Schaeffer]

Speakertim,

Thank you.

Lafayette,

I have provided data earlier about how increased drilling has increased the U.S. natural gas supply. Note that I have not attributed increased drilling to tax law policy or changes in tax law. Price changes are a much better explanation.

Puff,

I really don’t know what your point is. The original authors wrote

“Oil companies deny this. Regardless of who is right, the number of operating oil rigs in North America declined across the course of 2007.”

This statement is not correct. The EIA data (http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm) shows that drilling (feet and rigs) rose from 2006 to 2007 (U.S. only). The Baker Hughes data shows that North American rig activity rose from 2006 to 2007 (http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm). The authors used the phrase “oil rigs” which could mean oil only or oil and natural gas. I checked and found that oil only rigs rose from 2006 to 2007 (U.S. and North America).

I have already posted statistics showing the highs and lows for drilling since WWII. The peak (measured in feet drilled) was in 1981. We are currently at around 3/4s of the all time high. This is a three fold increase from the low point in 1999. It is probably worth noting that both oil and natural gas production are below their all time (U.S.) peaks with a greater percentage decline for oil than natural gas. All of these numbers reflect both prices and the depletion of the U.S. resource base.

It seems to me that the topic at hand is whether drilling activity has increased in response higher to higher prices (contra the original authors). Yes, it has and by a lot. A related point is whether the drilling has produced any results. With U.S. gas production now rising that answer would appear to be yes.

[Peter Schaeffer]

Lafayette,

The onshore U.S. oil resource base in showing clear signs of depletion. No amount of onshore drilling will turn it around. Higher oil prices will make possible more advanced recovery schemes enabling considerably greater final yields.

By contrast, the U.S. gas resource base is in better shape. The EIA article about why gas production is rising explains this. The U.S. has very large "tight" gas fields. These fields have been known for many decades but not produced because of very high costs. Now they are economically feasible (technological advances have also played a role).

The only way to improve U.S. oil (crude oil, not natural gas) prospects are via offshore and Alaskan (ANWR and elsewhere) drilling. Hence the controversies.

[Lafayette]

Triple Whammy

PS: The only way to improve U.S. oil (crude oil, not natural gas) prospects are via offshore and Alaskan (ANWR and elsewhere) drilling.

The proven oil reserves of the US (including off-shore limits) is 12 years. So, America has three options:
(1) To import petroleum that is having serious (perhaps even catastrophic) environmental effects on this planet, not to mention its disastrous effect on our Balance of Payments - and continue to use highly polluting coal. Or,
(2) Develop alternative, renewable energy sources. And/or,
(3) Develop alternative non-renewable but non-atmospheric polluting energy sources

We would be blind not recognizing and reacting to that Triple Whammy described in (1) above. The real alternative is other energy sources. And they are manifold.

I suggest anyone interested in this matter read the Economist's introspective "Special Report on the Future of energy", in the June 21st, 2008 issue. Here are some poignant graphics from that article: -1-;-2-; -3-; -4-.

[Peter Schaeffer]

Lafayette,

According to the U.S. MMS (Mineral Management Service) the U.S. has an estimated 85.9 billion barrels of undiscovered oil offshore (see http://www.mms.gov/revaldiv/PDFs/2006NationalAssessmentBrochure.pdf). That's enough for around 40 years at current production rates.

The 12 year number probably refers to current proven reserves. However, this is an underestimate because proven reserves from any given field tend to rise over time as secondary/tertiary recovery technology improves. Obviously, higher prices play a role as well.

Another useful point is that the SEC requires oil companies to be quite conservative in estimating "proven" reserves. A few companies (notably Shell) have erred by significantly overestimating their reserves. Underestimates have been more common.

An interesting statistic tends to support this point. Apparently half of all U.S. oil (measured by original oil in place) were found before 1920 (without seismic and logging!). 88 years later, U.S. production is around 2/3rds of the peak decades ago.

[Peter Schaeffer]

Make that "was found"

[Lafayette]

Foolishly naive

PS: The onshore U.S. oil resource base in showing clear signs of depletion.

Those figures were for total proven reserves , onshore and offshore. I don't understand this "thing" you have for offshore reserves. Brazil just declared a humongous find offshore in extremely deep waters -- we shall see how soon those reserves are tapped.

Unproven reserves are all over the place as well as proven reserves in places that it would be technologically impossible to obtain. The higher cost of extraction, plus the inevitable carbon tax (that many electricity generating companies are already incorporating into their production costs) would increase Total Cost eventually to meet that of the diminishing Total Costs of solar, geo- or aero-thermic, or biomass fuel sources.

Besides, discussing oil reserves, proven or unproven, is moot. To do so means to disregard entirely the necessity of replacing the carbon molecule, whether contained in oil, coal or gas, by ANY OTHER SOURCE that will reduce CO2 emissions.

Too think that more reserves or more efficient exploitation of reserves is going to save the day is denying the sad fact of the Greenhouse Effect upon the earth's weather system. Meaning polar icecap melt provoking rising sea levels destroying seasides. Meaning destruction of a finely balanced weather system having significant effects on crop harvests. Meaning the resettling of the emission particulates in the air we breath affecting our health. I could go on, but the list gets gruesome.

We are foolishly naive to keep thinking that fossil fuels are our future -- or seek pseudo-justification for that notion.

Because they aren't.

[Peter Schaeffer]

Lafayette,

Some production numbers from Brazil should put this in perspective. In 1980, Brazil produced 244KBD. Brazil now produces 2.277MBD. It would appear that Brazil's reserves are more than hypothetical.

Global warming may be a very serious problem. However, the global consensus doesn't favor any substantive action to reduce CO2 output. Indeed, that vast majority of nations will increase CO2 output by policy for many years to come.

Note that not one of they Kyoto signatories was willing to make any material sacrifices to comply. The countries that were faced with large cutbacks to comply with Kyoto (notably Canada) chose to ignore it.

I have been and may now be a holder of Petrobas shares.

says...

Save for this sentence, "Regardless of who is right, the number of operating oil rigs in North America declined across the course of 2007," I find nothing jarring about Theodore Seto's argument.

Operating oil rigs appear to have increased during 2007, but of course there were investment subsidies being provided by 2007, but the question remains why was investment by American oil companies relatively low through the period of remarkable price increases, seemingly spurred lately and only by direct subsidies?

[anne]

http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

May, 2008

U.S. Crude Oil Drilling Activity, Rotary Rigs in Operation, Onshore and Offshore, 1988-2008

(Count)

Sep-1987 713
Dec-1987 746

Mar-1988 582
Jun-1988 554
Sep-1988 512
Dec-1988 507

Mar-1989 407
Jun-1989 423
Sep-1989 460
Dec-1989 541

Mar-1990 478
Jun-1990 498
Sep-1990 566
Dec-1990 643

Mar-1991 520
Jun-1991 483
Sep-1991 433
Dec-1991 469

Mar-1992 381
Jun-1992 343
Sep-1992 345
Dec-1992 397

Mar-1993 315
Jun-1993 350
Sep-1993 418
Dec-1993 425

Mar-1994 323
Jun-1994 331
Sep-1994 325
Dec-1994 354

Mar-1995 322
Jun-1995 301
Sep-1995 333
Dec-1995 325

Mar-1996 286
Jun-1996 298
Sep-1996 301
Dec-1996 361

Mar-1997 377
Jun-1997 396
Sep-1997 392
Dec-1997 361

Mar-1998 327
Jun-1998 267
Sep-1998 215
Dec-1998 155

Mar-1999 114
Jun-1999 124
Sep-1999 130
Dec-1999 161

Mar-2000 173
Jun-2000 201
Sep-2000 199
Dec-2000 242

Mar-2001 248
Jun-2001 219
Sep-2001 220
Dec-2001 147

Mar-2002 144
Jun-2002 138
Sep-2002 122
Dec-2002 137

Mar-2003 171
Jun-2003 152
Sep-2003 154
Dec-2003 153

Mar-2004 164
Jun-2004 164
Sep-2004 166
Dec-2004 180

Mar-2005 186
Jun-2005 146
Sep-2005 210
Dec-2005 247

Mar-2006 244
Jun-2006 285
Sep-2006 305
Dec-2006 281

Mar-2007 282
Jun-2007 283
Sep-2007 302
Dec-2007 338

Mar-2008 343

[anne]

[Darn; I am sorry that my name was lost above, somehow.]

[anne]

What I do not understand about the drill-rig operating data, and have to ask about, is why the variation is so sharp. I chose to use 4 months in a year from 1988 to 2008 to give a clean sense of the trends and variations. Even with vast tracts of public land on which to drill, however, the increase in operating rigs does not seem at all impressive these last years and I am told that a fair number of rigs are relatively low productivity already dug wells that were idled but have been opened as prices have risen.

Looking to natural gas production along with oil would show more impressive gains....

[anne]

http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

May, 2008

(Count)

U.S. Crude Oil Drilling Activity, Rotary Rigs in Operation, Onshore and Offshore

Dec-1987 746

Dec-2007 338

U.S. Natural Gas Drilling Activity

Dec-1987 288

Dec-2007 1411

U.S. Crude Oil and Natural Gas Drilling Activity

Dec-1987 1034

Dec-2007 1749

[Notice the pattern....]

[anne]

http://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

May, 2008

Rotary Rigs in Operation, Onshore and Offshore, 1987-2007

(Count)

U.S. Crude Oil Drilling Activity

Dec-1987 746
Dec-1992 397
Dec-1997 361
Dec-2002 137
Dec-2007 338

U.S. Natural Gas Drilling Activity

Dec-1987 288
Dec-1992 529
Dec-1997 652
Dec-2002 719
Dec-2007 1411

U.S. Crude Oil and Natural Gas Drilling Activity

Dec-1987 1034
Dec-1992 926
Dec-1997 1013
Dec-2002 856
Dec-2007 1749

[Lafayette]

PS: In 1980, Brazil produced 244KBD. Brazil now produces 2.277MBD. It would appear that Brazil's reserves are more than hypothetical.

As regards the new fields, they will prove to be technologically EXTREMELY DIFFICULT to exploit. Meaning, extraction costs could render the price similar to other renewable energy sources by the time it comes to market in four or five years. The new discoveries are only viable if high oil prices are maintained.

Sugar cane, another Brazilian energy source, is far less expensive because, once planted, the crop repeats 7 years without the necessity of replanting, like corn.

We cannot grow sugar-cane in the US, with a multitude of Latino laborers in the southern states where the crops would likely grow best?

Why did lead-head throw a bone to the corn farmers and not embark on a program to develop this other source? It is surely both profitable and viable whilst not affecting corn as a cereal crop for both animals and humans?

From WP, here: Ribbon cane syrup

Ribbon cane is a subtropical type that was once widely grown in southern United States, as far north as coastal North Carolina. The juice was extracted with horse or mule-powered crushers; the juice was boiled, like maple syrup, in a flat pan, and then used in the syrup to form as a sweetener for other foods. It is not a commercial crop nowadays, but a few growers try to keep alive the old traditions and find ready sales for their product. Most sugarcane production in the United States occurs in Florida and Louisiana, and to a lesser extent in Hawaii and Texas.