Thanks
http://www.iRentCanada.ca
Mike G

The cost of production in several areas which underwent significant development in the last run-up is the same or substantially higher. I’m specifically thinking about Venezuela, Saudi Arabia and many African countries. When they’re not making money, people get angry, which destabilizes the market (and/or causes production to decrease) causing the price to increase. $40/barrel oil is not going to be the 1-2 year price target.

I remember in 2006 when oil hit ~55 -~60 and people were panicking since it had just come down from ~$80 ?? or so and how the world was ending then too. It’s all psychological, people become complacent and expect things will never end and they always! do. Canada is a commodities/resource based economy, especially Alberta of course, but BC and Sask just as much, and if someone cannot handle an economy like we have then they need to live elsewhere. The swings are a nature of the beast and a person has to prepare for the bad times -during- the good times.

Good job on the blog.

As for the F&D costs, I derived them based on expected average well costs and average rates and declines as per ERCB data. I used the most optimistic decline rate they had listed actually, and the well costs was estimated to be that of an average well cost.

I’ve seen tie-ins that cost near $1 million. At a rule of thumb of $50K/inch mile and most lines are 3″, would cost about $150,000. Also, required would be some facility costs that may include cost of a separator package, possibly injection wells for disposing of water, plus pumps and tanks. So a range for tie-in costs would range maybe from $150,000 to $1,000,000 and that is why I chose $300,000 as an average cost.

As for the operating costs, these were based on what I’ve seen common for energy companies. I’ve listed two references above that refer to 2008 operating costs (Pengrowth and Husky).

Oil will come back, there is no doubt. Companies that spent too much thinking it would never end were simply poorly managed….anyone could have made money in the last few years without really trying…now the “real” good management teams will shine through and the others will simply evaporate.

I have been in the industry for 20years in AB and have seen it more than once. Anyway, your numbers are not accurate. $30 oil is fine, just not desirable that;s all. High oil prices are not desirable either. A good balance is better.

I have been thinking and hearing lately that we will likely see another oil shock which for these parts will probably see prosperity, particularly in the housing sector again. The real nugget is recognizing that with every oil shock can and often will bring a painful downturn (cue ominous music). This time I will be more careful.

This whole thinking reminds me of the old bumper stickers in Alberta, “God please send me another boom, I promise not to piss all the money away this time”