How long would the oil rig in the gulf have to be fully operational to pay for the environmental damage caused by the spill?



  1. 0 Votes

    It depends, of course, on what that environmental cost is, and on the sustained production rate for the field.

    Average finding costs in the deep water Gulf of Mexico are about $64 per barrel, and lifting (production) costs are around $15 per barrel. That does not count the 12.5% federal royalty on what is left, and I also don’t think it amortizes the cost of a production plaform, which for a major field could be $5 billion or more. So round it off to about $90 per barrel in costs, realizing that is the low end.

    Oil today is about $92 per barrel, so there would be “profit” of $2 per barrel. If the field could produce a sustained 10,000 barrels per day from that well, that would be great. The highest rated platform in the Gulf, Thunder Horse, supposedly has the capacity for 250,000 barrels per day from 7 wells, or about 35,000 barrels per day per well. The blown out well might have become a multi-well field or not. We’ll consider the single well that makes $2 per barrel.

    If the environmental damage is $20 billion, $20,000 a day (10,000 barrels x $2 profit per barrel) it would take 1 million days to make $20 billion. Or 2,740 years.

    As an aside, those high costs are why only huge companies can afford to invest in the first place, and why there are only a handful of active wells (14 or so) in the deepwater Gulf. It is very risky even apart from the danger of something like the BP well blowout. It’s not likely that they would have even developed a field that could only yield 10,000 barrels per day – it might indeed not even be economic to do so. It would have taken several more wells and additional study to determine if the total size warranted the effort. Many, even most wells may have huge initial production levels, as the leaking well almost certainly would have – but even at 35,000 barrels a day for 2 years it would have been too little you need multiple wells at such a level, for many years, for the economics to make the project worthwhile.

Please signup or login to answer this question.

Sorry,At this time user registration is disabled. We will open registration soon!