Petroleum Engineering: Oil and Gas Industry Structure

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Questions and Answers

What significant change occurred between BP and Amoco in December 1995?

They merged to form BP Amoco. (correct)

They initiated a joint venture.

They split into separate companies.

They changed their business focus.

What has been the percentage increase in exploration and production costs by major oil companies over the last three decades?

Over 200 percent

Over 300 percent

Over 500 percent

Over 400 percent (correct)

Which of the following mergers occurred in November 1999?

Total and Elf Agvitane

BP and Amoco

Exxon and Mobil (correct)

Chevron and Texaco

Why has drilling become more expensive in the oil industry?

Because of the need for additional confirmation wells. Signup and view all the answers

What is the observed trend in the number of exploratory well completions as oil prices decline?

They begin to fall. Signup and view all the answers

How much was the estimated cost per well drilled in 2006?

$2 million Signup and view all the answers

What is the primary objective of secondary recovery methods in oil extraction?

To maximize utilization of the oil reservoir. Signup and view all the answers

What factor has stimulated more investment in oil exploration since the 1970s?

Rising oil prices Signup and view all the answers

Which method helps to increase the oil recovery rate and reduce trapped hydrocarbons in the reservoir?

Enhanced oil recovery (EOR). Signup and view all the answers

Which merger was completed in 2003, changing its name to Total?

Total/Fina and Elf Agvitane Signup and view all the answers

What element primarily powers the self-driving force that brings oil to the surface?

Water or gas contained in the reservoir. Signup and view all the answers

Where are the new regions for oil exploration and production activities primarily located?

Africa and Asia Pacific Signup and view all the answers

What concept should ideally determine oil pricing?

The relationship of oil supply and demand. Signup and view all the answers

Which stage follows the well head in the oil production process?

Metering. Signup and view all the answers

What complicates the separation of production from exploration in the oil and gas industry?

The interplay between operating costs and production. Signup and view all the answers

What advanced technique is mentioned for planning oil extraction?

3-D visualization modeling. Signup and view all the answers

What primarily contributes to the large fixed costs in the oil and gas industry?

Exploration and development costs Signup and view all the answers

Which statement correctly describes the relationship between variable costs and fixed costs in the oil industry?

Variable costs are much lower than fixed costs. Signup and view all the answers

What effect does increasing production have on the long-run average total cost (LATC) in the oil industry?

LATC decreases with increasing production. Signup and view all the answers

In addition to cost structure, what other factors significantly influence market structure in the oil industry?

Market size and government policies. Signup and view all the answers

What does the intersection of the world oil supply curve and the demand curve represent in a static model?

Equilibrium market oil price and quantity. Signup and view all the answers

What process is involved in converting crude oil into finished oil products?

Refining Signup and view all the answers

How did the number of operating refineries change globally between 1989 and 2008?

Increased from 646 to 700. Signup and view all the answers

Who historically controlled the oil industry, including refining?

Major oil companies. Signup and view all the answers

What is typically the first step in the exploration for oil and gas?

Conducting geological surveys Signup and view all the answers

Which technology is NOT mentioned as an advancement in exploration and production?

Horizontal drilling Signup and view all the answers

What stage follows exploration in the oil and gas industry structure?

Production Signup and view all the answers

What is a significant challenge during the exploration and reservoir development stage?

Cost and technology demands Signup and view all the answers

Which of the following describes the nature of drilling a test well?

It is an expensive operation. Signup and view all the answers

What is the main aim of technical improvements in exploration and production?

To reduce costs and environmental impact Signup and view all the answers

Price mechanisms in the oil and gas industry are influenced by which of the following?

Market structures and economic factors Signup and view all the answers

What type of surveys are reported to be the most useful in oil and gas exploration?

Seismic surveys Signup and view all the answers

Study Notes

Structure of the Oil and Gas Industry

The oil and gas industry consists of several key stages: exploration, development, production, transportation, refining, processing, and marketing.
Market structures and pricing mechanisms are integral to understanding how prices are set in this complex industry.

Exploration and Development

Oil and gas exploration begins with geological and geophysical surveys, with seismic surveys being the most effective technique.
Challenges in exploration and reservoir development often involve economic and technological hurdles, requiring advanced tools and integrated seismic programs.
Innovations in exploration and production (E&P) technologies include 3-D and 4-D seismic imaging, basin modeling, and slim-hole drilling, enhancing cost efficiency and reducing environmental impact.
Drilling test wells is essential for verifying the presence of oil, representing a significant financial investment.

Economic Increases in Exploration Costs

Major oil companies have witnessed over a 400% increase in exploration and production costs over the last 30 years, driven by activities expanding into newer regions, such as Africa and Asia Pacific.
The estimated cost per drilled well was approximately $2 million in 2006, with costs in Western Europe nearly tenfold higher due to offshore operations.

Market Impact of Oil Prices

Oil prices are closely linked to exploration and development costs, with rising prices since the 1970s leading to increased exploration investments.
The number of wells drilled increased by 30% between 1980 and 2010; however, a decline in oil prices typically results in fewer exploratory well completions.

Production Process

Oil production often occurs through natural pressure, with water or gas in the reservoir driving oil to the surface.
Secondary recovery methods include water and gas injections, while enhanced oil recovery (EOR) techniques seek to maximize oil extraction.
The production process encompasses various stages, from wellhead operations to storage and export, requiring specific facilities and utility systems.

Cost Structures in the Oil Industry

Production incurs fixed costs (mainly exploration and development) and variable costs (operating costs), with variable costs typically lower than fixed costs.
As production increases, the long-run average total cost (LATC) generally decreases, characterizing the oil industry as a "natural monopoly."

Market Dynamics

Market size and government policies also influence the oil industry's structure, beyond just costs.
Smaller fields may have higher operating costs, leading to an increase in LATC.
In a perfectly competitive market, equilibrium prices are determined at the intersection of the supply curve (based on production costs) and the demand curve.

Refining Industry

Crude oil refining involves multiple physical and chemical processes to produce finished oil products.
The number of operational refineries globally rose from 646 in 1989 to 700 in 2008, spanning 120 countries, indicating growth in the refining sector.
Historically, refining and the broader oil industry were dominated by major oil companies, shaping market operations and product availability.

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Description

This lecture notes delve into the intricate structure of the oil and gas industry. It covers various stages from exploration and development through to transportation, refining, and marketing. A comprehensive understanding of this sector's operations is essential for students of petroleum engineering.