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Oil Profits Fund Future Explorations

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Oil Profits Fund Future Explorations

Oil Profits Fund Future Explorations

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The price of a barrel of oil is hovering above $90 this week. That's a financial windfall for oil companies. At least some of that profit will pay for the search for more oil, although there's a limit to what money will buy.

NPR's Christopher Joyce has the latest in our series on high oil prices.

CHRISTOPHER JOYCE: The history of oil is one of boom and bust. When times are good, oil companies may use fatter profits to explore for more oil, or they may simply buy up competitors or reward stockholders. The boom at the moment does seem to be putting more money into exploration, however. Paul Henshaw is an oil geologist and consultant who spent years at Chevron exploring for oil.

Dr. PAUL HENSHAW (Oil Geologist): There has been new exploration and things that are - have been put on a shelf, maybe getting pulled off. You know, a lot of us geologists have some areas to say, oh boy, if the economics are right, we should go for that.

JOYCE: In North America, many of the major oil companies are going to the Gulf of Mexico. Higher oil revenues mean they can spend more to drill farther out at sea and deeper down. But Henshaw says there's no magic dollar number at which oil explorers say let's go drill.

Dr. HENSHAW: They may be basing their economic models on $50 a barrel, even though it's quote a hundred right now. Because for an exploration project, it can take like 20 years.

JOYCE: So the oil industry needs to feel that a $100 barrel of oil is part of a trend, not a freaky spike in prices before they'll invest millions or billions in a new project. Andy Radford is an exploration expert at the American Petroleum Institute in Washington. He says exploration has picked up pace recently, but he adds that high oil prices also mean everything else is expensive, drilling rigs, for example, and steel.

Mr. ANDY RADFORD (Upstream Standards Manager, American Petroleum Institute): In fact, I was just reading a study last week that showed the price for developing a field had actually doubled in the last two years due to increase in raw materials and the services and equipment required to do that.

JOYCE: But instead of opening virgin reservoirs, some companies are going back to old reservoirs or plays, as they call them in the business, once considered tapped out. Geologist Paul Henshaw explains it this way. Imagine a milkshake in a glass full of beads. You can suck most of it out with a straw, but some will stick to the beads, more than you'd think, in fact.

Dr. HENSHAW: When we leave an oil field, it can have anywhere from 20 to 80 percent of the oil still in the ground. It's just not recoverable under conventional technology.

JOYCE: When the price goes up, though, it may be worth it to go back for the dregs. Small developers like Arbor Resources in Michigan make a business of doing that. As Arbor engineer Dylan Foglesong explains, an old well might have oil left, but it simply broke down and was abandoned.

Mr. DYLAN FOGLESONG (Engineer, Arbor Resources): To fix that well and repair it could cost you several hundreds of thousands of dollars. At $20 or $30 a barrel, you might walk away from it and go down the road, whereas today those types of plays people will jump at.

JOYCE: And if it takes expensive technology to squeeze more oil out, well, higher oil prices may pay for that. Engineers can force steam or carbon dioxide down into wells to push out the hard to reach oil. Exploiting old wells does have drawbacks, though. For example, a company may find that a neighborhood has sprung up around an old site it wants to reopen.

Mr. FOGLESONG: It's a permitting nightmare. But at a $100 a barrel, they'll hire 10 lawyers and they'll spend the time in court and/or townships or whatever it takes to get that thing permitted online and drilled.

JOYCE: There is a limit to how much more geologists and engineers can squeeze the sponge in traditional oil plays though. Already, energy companies are investing more in alternatives like heavy oil from tar sands or shale. If passed (unintelligible) though, oil prices will have to stay high for these pricey alternatives to keep their charm.

Christopher Joyce, NPR News.

MONTAGNE: An array of competing factors determines whether and which countries benefit from high oil prices. You can view an interactive map of winners and losers at

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