The cost of producing oil

Crude oil prices continue to hover at $135 a barrel level, and nobody can agree who to blame.

The increase in demand worldwide is the biggest factor, but there is a debate about how much “excessive” speculation in oil markets is driving up prices to record levels. That means whichever way companies extract it, they’re bound to make money out of it.

That’s why Big Oil is seeking out prospects under deep seas, in shale rock and even in oils sands. Here’s a look at how much it costs oil companies to “produce” oil—in another words, at what price for a barrel of crude it make sense to exploit reserves at a profit.

1) “Accessible” land-based oil is definitely the cheapest to extract. At $19 a barrel, prospecting for oil on land is profitable.

2) “Shallow” water-based oil costs considerably more to produce. Oil must be between $20 to $60 a barrel to be worth extracting.

3) “Deep” water oil from the outer continental shelves cost a lot more. The high cost of leasing special rigs means that oil must be at $60 a barrel or higher to be worthwhile to prospect.

4) Shale mining works if oil is anywhere between $30 and $60 a barrel. But, that’s after billions of dollars in infrastructure costs that make it much more expensive initially.

5) The “oil sands” in Canada are profitable if oil is between $50 and $60 a barrel. That’s why oil companies are spending $20 billion this year to develop more fields there.

As one analyst put it to me, “At current prices, you can pretty much put a drill anywhere, and if oil oozed out, it’s profitable!”

That’s why I’m visiting Canada’s oil sands right now... stay tuned!