i was curious to know what the actual cost of oil is... the production cost that is... that is from finding oil to drilling it out... offshore oil production costs as much as $60/barrel but otherwise the cost of production is less than $20/barrel... the current oil price is over $90/barrel... see extracts bellow...

photo credit: James Bruntz

What Affects Production Costs?

Reservoir characteristics (such as pressure) and physical characteristics of the crude oil are important factors that affect the cost of producing oil. Because these characteristics vary substantially among different geographic locations, the cost of producing oil also varies substantially.

In 2006, average production costs (or lifting costs - the cost to bring a barrel of oil to the surface) ranged from

• about $4 per barrel (excluding taxes) in Africa
• to about $8.30 per barrel in Canada;
• the average for the U.S. was $6.83/barrel (an increase of 23% over the $5.56/barrel cost in 2005).

Besides the direct costs associated with removing the oil from the ground, substantial costs are incurred to explore for and develop oil fields (called finding costs), and these also vary substantially by region. Averaged over 2004, 2005 and 2006, finding costs ranged from about $5.26/barrel in the Middle East1 to $63.71/barrel for U.S. offshore. While technological advances in finding and producing oil have made it possible to bring oil to the surface from more and more remote reservoirs at ever increasing depths, such as in the deepwater Gulf of Mexico, the total finding and lifting costs have increased sharply in recent years.

How Is Crude Oil Produced?

Wells are drilled into oil reservoirs to extract the crude oil. "Natural lift" production methods that rely on the natural reservoir pressure to force the oil to the surface are usually sufficient for a while after reservoirs are first tapped. In some reservoirs, such as in the Middle East , the natural pressure is sufficient over a long time. The natural pressure in many reservoirs, however, eventually dissipates. Then the oil must be pumped out using artificial lift created by mechanical pumps powered by gas or electricity.

Over time, these "primary" methods become less effective and "secondary" production methods may be used. A common secondary method is water-flood or injection of water into the reservoir to increase pressure and force the oil to the drilled shaft or "wellbore." Eventually "tertiary" or "enhanced" oil recovery methods may be used to increase the oil's flow characteristics by injecting steam, carbon dioxide and other gases or chemicals into the reservoir.

Finding Costs by Region

Finding Costs by Region for FRS Companies, 2003-2005 and 2004-2006 (2006 Dollars per Barrel of Oil Equivalent)

Notes: NM = Not meaningful. The above figures are 3-year weighted averages of exploration and development expenditures, excluding expendituresfor proven acreage, divided by reserve additions, excluding net purchases of reserves.Natural gas is converted to equivalent barrels of oil at 0.178 barrels per thousand cubic feet. Sum of components may not add to total due to independent rounding.

photo credit: Rodrigo Sala

Oil Break-Even Prices

Current Oil Price

references

1. Energy Information Administration (EIA)
2. oil-price.net