"52 nd Name" Smithers Inc wrote:
DSK,
Why would oil companies invest the billions of dollars in infrastructure,
to extract 6 months usage of oil?

That's a pretty simple minded question there lad, though I doubt
you exact figures, I can't see how you could miss making a rough
estimate. (3.64 billion barrels of oil sells on today's market
for about $218 billion, which is *clearly* the reason oil
companies would invest a few billions of dollars in
infrastructure to extract it.)

However, lets look at some actual specifics, to nail this down
in more detail. The numbers are from the Anchorage Daily News
of February 5, 2005, and they cite the source as "Global Oil and
Gas Risks and Rewards, 2004" public summary, Wood Mackenzie
consultants. That is commonly referred to as the "Wood
Mackenzie Report", and is widely credited as a reliable source
(which costs an arm and a leg if you want access to the detailed
specifics!).

The US uses 20M barrels of oil per day. A six month supply is
3.64 billion barrels. Take your pick what you think the price
will be, but it typically runs about $4 a barrel less than the
average price of oil on the world market. Which is to say that
with other oil hitting $64 a barrel, right now Alaska North Slope
(ANS) crude is running right at $60 a barrel.

The actual cost of production for ANS is $9.94, according to
the Wood Mackenzie Report.

Hence the investment in infrastructure and operating expenses
for that 3.64 billion barrels would be roughly $36 billion. And
the price received for that oil would be $218.4 billion.

Now, the figures did not specify what the taxes are for oil at
$60/bbl, but did state that at $16/bbl it was 71.7% and at $35/bbl
it was 58.4% (for ANS crude). We can probably assume that there
would be a lower percentage at $60/bbl, but I'm not going to even
try guessing how much lower. Lets error on the conservative side
and assume it is the same.

$218 billions, sale price
- 36 billions, cost of production
---------
$182 billions, before tax profit
- 106 billions, taxes at 58.4%
---------
$ 76 billions, pure profit


I'd like to know where else someone can invest 36 dollars and
get 76 back in profit, and do it billions at a time too!

--
Floyd L. Davidson http://www.apaflo.com/floyd_davidson
Ukpeagvik (Barrow, Alaska)