Monday, May 27, 2013

3 Factors Keeping Oil Above $90 a Barrel

The gushing oil well at Spindletop Dome in Beaumont, Texas, is one of the most iconic images in the history of oil. When the well hit paydirt, oil spewed 150 feet into the air at a staggering rate of 100,000 barrels per day.

We've come a long way since that Spindletop gusher 112 years ago, and today's industry faces greater challenges finding new sources that can be sold at a reasonable rate of return.

On a recent conference call, Core Laboratories (NYSE: CLB  ) CEO David Demshur stated that outside some of the best spots in the U.S., oil producers in the U.S. will slow down exploration if oil prices are to remain below $90 for a sustained amount of time. Let's look at a few factors that might give some credence to Demshur's claim.

1. Higher resource costs. According to Cheaspeake Energy (NYSE: CHK  ) , the average shale well in the U.S. is drilled to 7,800 feet vertically plus several thousand feet horizontally and is injected with more than 5 million gallons of water, sand, and chemicals to fracture the tight pores where the oil is hidden. All of this effort is for an average initial production rate of about 450 barrels per day. (more)

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