Amid falling oil prices, the relevance of the issue of production costs for oil companies has grown. While some companies may well continue to operate in the current environment, others face serious losses and may even mothball the least efficient projects.
Production costs can often mean different numbers. In general, three categories of expenses for oil production can be distinguished:
- Lifting costs - the direct cost of raising a barrel of oil from the bowels of the earth to the surface. This includes the cost of operating the wells, including labor costs, electricity and maintenance.
- Exploration costs - costs associated with the search for new hydrocarbon deposits. This includes the costs of geological surveys and research, as well as the costs of drilling new wells.
- Taxes, with the exception of income tax (Non-income related taxes) - a tax burden that does not depend on the size of profit. It can vary from state to state, and from field to field within the same country due to various benefits. In Russia, oil companies pay mineral extraction tax (MET), excise taxes, as well as property taxes and export duties.
Together, these three categories gives us the value of the total cost of production per barrel of oil. Given that oil is rarely extracted in its pure form and most often is included in the mixture together with natural gas and gas condensate, it is more correct to talk about the cost of a barrel of oil equivalent ( b.o. or boe - barrel of oil equivalent ).
1 b.a. = 1 barrel of oil = 5800-6000 cubic meters feet of natural gas
For a general idea of the cost of production in different countries, we present the calculations that were performed by the IHS Market analytical agency commissioned by Saudi Arabia before the IPO of Saudi Aramco. Agency analysts estimated the break-even price after tax for new projects that were launched in 2019 in different countries of the world.
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