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September 24th, 2009

2009: A Great Year for the Oil Companies

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Forget renewable energy, for the moment oil companies are more focused on plentiful energy. The OPEC countries aren’t the only ones who want to keep oil prices from falling. While we know cheap oil prices are a welcome sign for consumers, the oil companies say that if prices fall like they did this past December (to $34/barrel), it could ruin the hot streak they’ve been on so far this year.

According to the New York Times, over 200 new oil discoveries have been made in dozens of countries so far this year. During the first half of the year alone, the new finds equaled about 10 billion barrels of oil, says IHS Cambridge Energy Research Associates. If oil companies continue at this pace until year’s end, they will have discovered more oil then they have in nearly a decade.

Yet, oil companies are worried that their plentiful harvest combined with the continued reduction in global demand could put a crimp in future discoveries:

While the industry is celebrating the recent discoveries, many executives are anxious about the immediate future, fearing that lower prices might jeopardize their exploration drive. The world economy is weak, oil prices have tumbled from last year’s records, corporate profits have shrunk, and global demand for oil remains low.

Oil companies contend that is not a prospect they can afford. Despite reaping record profits in recent years, many executives have warned that they need prices above $60 a barrel to develop the world’s more challenging reserves. In fact, some exploration activity has already slowed this year, as producers seek better terms from service companies and contractors.

In their defense (of both OPEC and oil companies), oil exploration/drilling is an expensive business. According to the Times, a deepwater exploration well can cost up top $100 million. Only 30-50% of wells even find oil.

OPEC’s Secretary General Abdullah al-Badri says low oil prices negatively impact production, which French oil executive Christophe de Margerie feels could lead to a shortage by the middle of the next decade.

Renewable Energy?

All of this discussion surrounding new frontiers of undiscovered oil has caused us to speculate that, at least for the moment, oil companies are still considering petroleum-based products as the future of energy — not renewable or alternative sources like some had hoped.

Readers: Are you all for there still being a drive to discover newer and more-plentiful sources of oil, or do you wish oil companies would shift their focus to renewable resources?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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