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64 comments on Investment in Oil Exploration and Production -- An "Above Ground" Factor

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Hothgor on November 24, 2006 - 10:14pm Permalink | Subthread | Parent | Comments top
Data compiled by the International Energy Agency show that investment in the oil-and-gas industry was $340 billion in 2005, up 70% from 2000. But cost inflation for goods and services used by the industry accounted for almost all of that increase, according to the IEA, the energy club of 26 of the world's major industrial nations. Adjusted for inflation, the oil industry's investment increased by 5% between 2000 and 2005, the IEA, based in Paris, said...

I'm a bit confused by this statement.  Over a 5 year span, a 70% increase to $340 billion means that we invested only $200 billion in 2000.  Assuming a 5% inflation rate for the industry, I come up with this:

2000 = $200.0
2001 = $210.0
2002 = $220.5
2003 = $231.5
2004 = $243.1
2005 = $255.3

340 / 255.3 = 33% increase

In order for this statement to be correct, and net investment to only increase by 5%, the global inflation rate would have to be at a rate that increases investment to $324 billion.  This rate would have to be around 10%.

Does anyone here really think the global oil industry inflation rate is 10% annually?  That would make it something like 2.5x the global inflation rate.

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Nick Rouse on November 24, 2006 - 10:30pm Permalink | Subthread | Parent | Comments top
The suspicion must be that this is an understatment not an overstatment. From this graph you can see that Gulf of Mexico drilling rig rates have trebled on the last two years. There are are other oil industry costs that have massively exceeded 10%
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AlanfromBigEasy on November 24, 2006 - 10:46pm Permalink | Subthread | Parent | Comments top
Yes, I think the global oil industry rate is 10% (at least).

Scarity has bid up a limited supply (in some cases dramatically) and even the raw materials used (steel & oil products are two largest) have gone up substantially.

Alan

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Wolfric on November 25, 2006 - 3:05am Permalink | Subthread | Parent | Comments top
To Hothgor

How to calculate a percentage of increase using simple mathematics.

A = Last measurement
B = increase
C = Percent of increase

A-B/A = C

(A-B/A)*A = C*A

A-B = C*A

-B = C*A-A

If we replace with actual numbers we get

-B = 0.70 * 340 - 340
-B = -102
B = 102

That's the increase of 70% in 5 years.  Starting year would then be 340-102 = $238 billion.  Using that REAL starting number, see what we get with an increase of 5% each year.

2000 = 238
2001 = 249.9
2002 = 262.4
2003 = 275.5
2004 = 289.27
2005 = 303.73

Well, that wasnt enough.  What about 7%, lets see :

2000 = 238
2001 = 254.66
2002 = 272.49
2003 = 297.20
2004 = 318
2005 = 340

Actual yearly increase should have been 7%, that pretty near real inflation rate as stated by shadowstatistic web site.

If you make an argument about some calculation (any) be sure to have enough mathematical literacy.

I had a physics teacher that was always saying that before pointing at the straw in the eye of others, someone should first notice the wooden beam that's in his.

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elwoodelmore on November 25, 2006 - 7:14am Permalink | Subthread | Parent | Comments top
it would surprise me if inflation in oil exploration and development costs is only 10 %    and that 4% global inflation    dream on     the reported about 3% inflation in us of a cpi is in reality more like 7 % when calculated in the old fasioned (before monica) way
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MUDLOGGER on November 25, 2006 - 9:37am Permalink | Subthread | Parent | Comments top
Global oil inflation rate: Is operating at a very high level due to shortages of rigs, services, personnel, you name it. One of the down sides of cannibalising the industry's drilling infrastructure for the years 1990 - 2005 is the shortages now facing the industry.

In some sectors, Personnel rates have almost doubled.

Rig rates have never been higher.

This significantly impacts on Operator costs and an operators ability to get things done even with the higher Capex for Exp. and Appraisal drilling.

Simmons's presentations of late keep coming back to this issue.

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