Re: this crisis might make our little mako even more important......
in response to
by
posted on
Jan 08, 2009 05:17AM
Developing large acreage positions of unconventional and conventional oil and gas resources
Hi Lanman
in your reply you said "It's also important that Exxon will not be using todays gas prices, they will be using what they estimate the gas prices will be over the timeframe of the project, which could be up to 50 years. ".
You are correct in saying Exxon will not be using toda's natural gas prices in their calculations. But it will not be a higher number either, in fact it will be a conservative number. Another issue is where you suggest that they would be using an estimated price or prices over the term of the project, being up 50 years. In fact the recovery of capital is of the highest importance and the shorter this time frame the better. In a polically stable area, the number of years can be higher, in riskier environment, the number of years must be smaller. Larger companies have a return on investment of capital in the order of a few years and to achieve that, projects require very high economics. It is true that the project will have a time span of a few decades and thus capital expenditures will also be spread over a few decades. However there is a minimum size of the project, a minimum capital investment and accompanied with a minimum development which would get the project going. That capital needs to be recovered in the matter of only a few years. If the economics support it (that means we get the money back in a few years), the project gets the go ahead. As for the expenditures and capital requirements of the project in decades to come, no one has a crystal ball and it is left to a best guess estimate. So to go back to the beggining, the natural gas price in EU today is not used in the calculations. The Nat gas price used is a much more conservative number (that means smaller), hence the project would have superior economics when it gets the go ahead.
db