Advanced

The Economics of Arctic Offshore Oil

Karlsson, Don and Eriksson, Gustav Albert (2009)
Department of Business Administration
Abstract
The time of easily recoverable oil is coming towards an end, and oil companies start to look at other frontiers where the oil is more difficult to reach in order to secure future supply. One of those areas is the arctic which is considered to have a great amount of oil and gas and is at the present time relatively unexplored. Since the arctic climate is severe, it is consistent with extra costs to explore and develop a field in the area in comparison with a conventional oil field, but how much extra is the question, and to what oil price is it profitable for the oil firms to explore and develop those areas. To answer these questions it is crucial to investigate required technologies for the arctic environment, estimate the costs for them... (More)
The time of easily recoverable oil is coming towards an end, and oil companies start to look at other frontiers where the oil is more difficult to reach in order to secure future supply. One of those areas is the arctic which is considered to have a great amount of oil and gas and is at the present time relatively unexplored. Since the arctic climate is severe, it is consistent with extra costs to explore and develop a field in the area in comparison with a conventional oil field, but how much extra is the question, and to what oil price is it profitable for the oil firms to explore and develop those areas. To answer these questions it is crucial to investigate required technologies for the arctic environment, estimate the costs for them and discount the costs back to the present time. To investigate how much oil there is in an arctic field and to estimate a production scenario is also required. The purposes of this study are: 1. Develop a model for evaluating arctic offshore field concepts and estimating the cost drivers of the concept in order to calculate an entry level oil price at which oil firms can beneficially invest in the arctic production. 2. Describe necessary technologies applicable in the arctic for extracting oil and delivering it to the market. 3. Apply the developed model to a case study in order to find an entry level oil price for the case study.
Technologies optimal for arctic exploration and development are currently only at the early stages of development. This makes the cost for the technologies quite difficult to estimate. However, there are many firms developing technologies suitable for the arctic since many people in the oil industry are confident that the arctic has a great future as an oil supplying region. However, extracting oil from the arctic will be costly for the firms deciding to invest in the arctic, and will require large fields with good viscosity of the oil. Even though large fields will be found and the oil is of great quality and viscosity, the cost for the extraction will be higher than today’s oil price. The base case of our study of an arctic field will require an entry level oil price of more than USD 55.8 per barrel. The sensitivity analysis of the same field brings a span of oil price ranging from USD 22.0 to 138.6, and it is rather believable that we are facing an entry price level of arctic oil on the higher side of the base case than the lower side of it. (Less)
Please use this url to cite or link to this publication:
author
Karlsson, Don and Eriksson, Gustav Albert
supervisor
organization
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Value shop, Net Present Value, Pipeline, Gravity Based Structure, Drillship, Drilling, Costs, Offshore, Oil, Economics, Arctic, Cost driver, Management of enterprises, Företagsledning, management
language
Swedish
id
2171783
date added to LUP
2009-05-19 00:00:00
date last changed
2012-11-21 12:45:56
@misc{2171783,
  abstract     = {The time of easily recoverable oil is coming towards an end, and oil companies start to look at other frontiers where the oil is more difficult to reach in order to secure future supply. One of those areas is the arctic which is considered to have a great amount of oil and gas and is at the present time relatively unexplored. Since the arctic climate is severe, it is consistent with extra costs to explore and develop a field in the area in comparison with a conventional oil field, but how much extra is the question, and to what oil price is it profitable for the oil firms to explore and develop those areas. To answer these questions it is crucial to investigate required technologies for the arctic environment, estimate the costs for them and discount the costs back to the present time. To investigate how much oil there is in an arctic field and to estimate a production scenario is also required. The purposes of this study are: 1.	Develop a model for evaluating arctic offshore field concepts and estimating the cost drivers of the concept in order to calculate an entry level oil price at which oil firms can beneficially invest in the arctic production. 2.	Describe necessary technologies applicable in the arctic for extracting oil and delivering it to the market. 3.	Apply the developed model to a case study in order to find an entry level oil price for the case study.
Technologies optimal for arctic exploration and development are currently only at the early stages of development. This makes the cost for the technologies quite difficult to estimate. However, there are many firms developing technologies suitable for the arctic since many people in the oil industry are confident that the arctic has a great future as an oil supplying region. However, extracting oil from the arctic will be costly for the firms deciding to invest in the arctic, and will require large fields with good viscosity of the oil. Even though large fields will be found and the oil is of great quality and viscosity, the cost for the extraction will be higher than today’s oil price. The base case of our study of an arctic field will require an entry level oil price of more than USD 55.8 per barrel. The sensitivity analysis of the same field brings a span of oil price ranging from USD 22.0 to 138.6, and it is rather believable that we are facing an entry price level of arctic oil on the higher side of the base case than the lower side of it.},
  author       = {Karlsson, Don and Eriksson, Gustav Albert},
  keyword      = {Value shop,Net Present Value,Pipeline,Gravity Based Structure,Drillship,Drilling,Costs,Offshore,Oil,Economics,Arctic,Cost driver,Management of enterprises,Företagsledning,management},
  language     = {swe},
  note         = {Student Paper},
  title        = {The Economics of Arctic Offshore Oil},
  year         = {2009},
}