The Oil Industry and the Factors that influence Oil Prices – Chapter 5: The Drilling & Production of Oil

This is chapter number 5 out of 10. Read the rest:

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 2: Oil Prices Determinants
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 3: The Sentiment of the Market
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 4: The Origin of Oil and its Composition

To get to the petroleum under the ground, oil companies employ a variety of techniques to prospect for possible sites. These techniques include drilling for a cross section of the rock under the ground (Core Sampling) and bombarding the earth’s crust with artificial shockwaves to generate returning vibrations signals which are then measured (Seismic Testing).

Upon completing these tests, the next stage is to drill an exploratory well into the ground to confirm the presence of oil and gas. If there is no oil or gas found or is found to contain uneconomically viable quantity, then the unsuccessful well is known as a “dry well”.  Successful drilling may find oil or gas or in the majority of the times, both. The gas can get dissolved in the oil and if such is the case, the gas is removed from oil in a process distinct from the process of oil production.

Traditionally, before seismic technology was available for oil explorations, prospecting for oil was done by “Wildcatting”. This involves drilling wildcat wells in region where oil has not been discovered yet. Normally this method of looking for oil has a very low rate of success as only 1 in 5 wildcat wells ever found any oil or gas. If a wildcat well managed to find oil, then additional wells are sunk into the ground to define the boundaries of the reservoir as well as to test the conditions for production. Once these production wells are setup, the oil and gas are extracted from the ground and transported through pipelines or by tankers to be sold.

The type of reservoir and the type of crude oil found are both important factors in determining the production costs. Production cost can be as low as $2 per barrel as in the Middle East to as high as $15 per barrel in theUS. However, it should be noted that as technological advances are made, they cost can be reduced substantially. For example, the deepwater wells of theGulf of Mexicoused to be exorbitant to produce has become productive wells as technological progress have reduces cost to under $10 per barrel.

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 6: Comprehending Price Fluctuations
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 7: The Supply of Crude Oil and Its Prices
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 8: The Components of Gasoline’s Retail Price
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 9: When Supply and Demand isn’t the answer
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 10: Conclusion