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106 comments on Wikipedia Megaproject Update (August 2008)

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phoenix on August 26, 2008 - 11:59pm Permalink | Subthread | Parent | Comments top

Memmel
One of the other distortions we need to consider with respect to the cost of production is the differential between capital cost and production cost.

A substantial portion of the cost of production is the capital cost of the oil production facilities. In many cases (and increasingly so into the future) this capital cost represent a greater portion of the production cost than does ongoing operations. Once the project is committed and built then this is a sunk cost. To continue viable production the operator only needs to overcome the hurdle of the ongoing operational cost, a much smaller number.

If you examine the receeding horizon issue raised by Nate then you need to treat new field development in a different way than production from existing developed fields.

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memmel on August 27, 2008 - 4:14am Permalink | Subthread | Parent | Comments top

Right receding horizons is a bigger problem for new fields agree 100%.

But with most of our fields getting pretty old infield drilling is at best slowing decline. The problem is without a fairly continuous supply of new fields esp in the small field case with lifetimes of 5-10 years you quickly hit the point where more and more fields are in the heavily depleted steep decline case. Its only the new fields we have developed over the last 20 years that has kept production up.

This is on top of the broad hopefully slower decline of the giant fields that dominate the production. Deep Water for example precludes development of smaller fields same with artic etc. Simply because of costs and receding horizon problems make it uncertain how much of the arctic or deepwater will ever be developed.

We are losing our shallow water smaller fields that really kept production going over the last 20-30 years and the new replacement choices are prohibitive in cost capital wise and energy wise.

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106 comments on Wikipedia Megaproject Update (August 2008)

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