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Questions and Answers
What was the estimated cost per well drilled in 2006?
What was the estimated cost per well drilled in 2006?
Which pair of companies merged to form ExxonMobil?
Which pair of companies merged to form ExxonMobil?
What factor has contributed to the increase in costs for exploration and production over the last three decades?
What factor has contributed to the increase in costs for exploration and production over the last three decades?
What was the primary reason for the increase in capital and exploration expenditure in the oil industry?
What was the primary reason for the increase in capital and exploration expenditure in the oil industry?
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What is one consequence of rising oil prices since the 1970s?
What is one consequence of rising oil prices since the 1970s?
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Which company merged with Texaco to become Chevron Texaco?
Which company merged with Texaco to become Chevron Texaco?
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How did the number of wells drilled change from 1980 to 2010?
How did the number of wells drilled change from 1980 to 2010?
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What significant change occurred to BP Amoco in 2002?
What significant change occurred to BP Amoco in 2002?
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How do variable costs in the oil industry typically compare to fixed costs?
How do variable costs in the oil industry typically compare to fixed costs?
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What happens to the long-run average total cost (LATC) as production increases in natural monopoly industries like oil?
What happens to the long-run average total cost (LATC) as production increases in natural monopoly industries like oil?
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What other factors, besides cost structure, influence market structure in the oil industry?
What other factors, besides cost structure, influence market structure in the oil industry?
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What has been the trend in the total number of operating refineries from 1989 to 2008?
What has been the trend in the total number of operating refineries from 1989 to 2008?
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What process does refining in the oil industry involve?
What process does refining in the oil industry involve?
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What approximate percentage of capacity do most world refineries operate at?
What approximate percentage of capacity do most world refineries operate at?
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Which aspect of the oil industry is still primarily under the control of major oil companies?
Which aspect of the oil industry is still primarily under the control of major oil companies?
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What is the typical outcome when the marginal cost curve intersects with the demand curve in the oil market?
What is the typical outcome when the marginal cost curve intersects with the demand curve in the oil market?
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What is the primary objective of secondary recovery methods in oil extraction?
What is the primary objective of secondary recovery methods in oil extraction?
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What initiates the natural flow of oil to the surface in new fields?
What initiates the natural flow of oil to the surface in new fields?
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Which factors primarily contribute to the fixed costs in oil production?
Which factors primarily contribute to the fixed costs in oil production?
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What role do advanced techniques like 3-D visualization modeling play in the oil industry?
What role do advanced techniques like 3-D visualization modeling play in the oil industry?
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During the production process, what occurs after oil is extracted from the well head?
During the production process, what occurs after oil is extracted from the well head?
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What is a major challenge of enhanced oil recovery (EOR)?
What is a major challenge of enhanced oil recovery (EOR)?
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How is oil pricing theoretically determined?
How is oil pricing theoretically determined?
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Which of the following is NOT a part of the oil production process mentioned?
Which of the following is NOT a part of the oil production process mentioned?
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What is the first stage of the oil and gas industry?
What is the first stage of the oil and gas industry?
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Which technology is highlighted as the most useful in the exploration stage?
Which technology is highlighted as the most useful in the exploration stage?
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What is a significant challenge in the exploration and development stage of the petroleum industry?
What is a significant challenge in the exploration and development stage of the petroleum industry?
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What is a necessary step after initial exploration to ensure the presence of oil?
What is a necessary step after initial exploration to ensure the presence of oil?
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Which of the following improvements aim to reduce exploration and production costs?
Which of the following improvements aim to reduce exploration and production costs?
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What aspect does not typically factor into oil and gas market structures?
What aspect does not typically factor into oil and gas market structures?
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What is a notable feature of the capital expenditures in the oil industry over the years?
What is a notable feature of the capital expenditures in the oil industry over the years?
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Which of the following is not a part of the oil and gas industry structure?
Which of the following is not a part of the oil and gas industry structure?
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Study Notes
Structure of the Oil and Gas Industry
- The oil and gas industry consists of multiple stages: exploration and development, production, refining, transportation, and marketing.
- Historical market structures and pricing mechanisms illustrate how oil prices are determined.
Exploration and Development
- Exploration involves geological and geophysical surveys, with seismic surveys being the most effective.
- Exploration remains a complex stage due to economic and technological challenges, requiring integrated seismic programs and advanced data analysis.
- New technologies such as 3-D and 4-D seismic imaging, basin modeling, and slim-hole drilling enhance efficiency and reduce environmental impact.
- Drilling a test well is expensive, with costs per well significantly increasing over the last three decades, particularly in traditional regions versus new areas like Africa and Asia Pacific.
- Major oil company mergers (e.g., BP and Amoco, Exxon and Mobil) have influenced industry structure.
Production
- Production seamlessly links with exploration, with early oil flow relying on natural reservoir pressure.
- As natural flow decreases with cumulative extraction, secondary recovery methods (water or gas injection) are employed.
- Enhanced oil recovery (EOR) techniques aim to maximize oil extraction rates and reduce unrecovered hydrocarbons.
- The production process involves multiple stages from wellhead to export, ensuring effective separation and compression of gases.
- Long-run average total cost (LATC) tends to decline as production increases, characterizing natural monopoly conditions found in expansive oil fields.
Refining
- Refining transforms crude oil into various finished products through physical and chemical processes.
- The global number of refineries increased from 646 in 1989 to 700 in 2008, spread across 120 countries.
- The oil industry has transitioned post-1970s, with national oil companies gaining control over operations, while refining remains mostly under oil companies or joint ventures.
- Refineries generally operate at about 85% of their refined capacity.
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Description
This quiz explores the cost structure and market dynamics of the oil and gas industry. It highlights how variable and fixed costs influence the long-run average total cost, particularly in natural monopoly scenarios. Additionally, it examines the role of market size and government policies in shaping the industry's landscape.
