The Economics of Oil Extraction

 

Even though there has been significant development of alternative energy sources, oil production is still a fundamental fuel for economic growth. However, oil reserves are limited, and the oil industry needs to progress at a sustainable rate to preserve this fossil fuel.



It’s more than just investing in drilling mud pumps or weight indicators. There’s a lot that we don’t know about the economics of oil extraction before we can pass a verdict on oil production.

The Variability of Oil

There are two broad classifications for oil deposits. The first refers to the weight of oil and its API gravity. This measures the density of the fuel. The second classification measures the flavour of the oil. It can be either sweet or sour, which indicates the presence (or absence) of sulphur.

These classifications help oil producers bifurcate crude oil that can easily be processed into high-end fuel and raw oil that needs heavy refining to be used. Light, sweet oil is an excellent fuel and, thus, high in demand. Heavy, sour oil requires more work to be processed into a state that will be good for commercial use and is mostly extracted from tar sands.

There's also the challenge of extracting oil from the deposits. Some deposits are inaccessible and becoming harder to remove because of twisted formations or shale rock. Other obstructions are when the location of the oil site is in remote sea beds. Even with hydraulic systems and state-of-the-art oil drilling technology, fracturing rocks and reaching into the reserves is an enduring process.

The Moving Profit Point

The variations in oil and differences in oil deposits quality make it hard for oil companies to have a single profit point. The Brent mark is often used as the benchmark oil price because it stands for the regular light oil with a sweet taste. Prices can vary depending on how close or far from the light-and-sweet ideal the final product is. Companies who can't get their hands on the perfect type of oil have to compromise on their price.



Uneconomic Production

Drilling and extracting oil is a costly venture that mandates a massive initial investment for the fixed cost of setting up the drilling platform. Even when the prices dip and production becomes unprofitable, companies keep drilling to compensate for the initial cost.

Companies can’t turn on a dime when there are labour costs, capital investments, leases, and miscellaneous expenses. It's more costly to shut down or lay off labour because rehiring when prices recover will be another challenge. This often leads to uneconomic production of oil. Only the larger companies can ride out the years with a strong financial statement; the smaller ones don’t have a chance to benefit from the production.

At most, they can recover the cost of oilfield instruments by investing in high-quality, affordable options. If you’re looking for premium industrial-grade drilling equipment at affordable pricing to meet these financial challenges, you’ve come to the right place.

Contact Instruments is a leading manufacturer of OEM instrumentation in Canada and has a production facility in Leduc, Alberta. They're manufacturing and supplying drilling equipment such as mud pressure gauges, custom cables, or clipper weight indicators for Canadian and American oil companies at market-competitive rates.

Check out their full range or call at 780-955-8998 for more information.

 

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