Surging oil prices have brought record profits to some oil companies but recent events may alter their strategies. Rising exploration, drilling and development costs are influencing the direction of some oil companies.

Exploration costs have increased by more than 35%. Drilling costs during the past two years have reached unimaginable heights. Off shore drilling has soared from $500,000 per day to an unbelievable $1.2 million. Despite the high cost increases long rig bookings have caused extended waiting periods. Countries like India are feeling the effects.

Land based exploration and drilling is facing similar cost increases. Rig costs in the past two years have increased from $65,000 per day to $250,000. Some regions are experiencing delays in part caused by rig shortage.

Some companies are changing their focus to unconventional oil. The Canadian tar sands and American oil shale is getting more attention than ever. With new technologies and high crude prices developing costs are becoming an added incentive. Once thought as unprofitable, the developing Canadian Tar Sands have caught the attention of foreign oil companies and international investors.

New technological developments in oil shale have caused some major oil companies to take a second look. Only a decade ago extracting crude from oil shale was unprofitable and doomed. Rising energy costs have brought new ideas and novel development. One company is developing microwave technology to extract kerogen from oil shale.

Throughout the US there are more than a half million oil wells. In Canada the numbers are much smaller but non-the less have caught the attention of some oil companies. Production of these wells can be restored, or in some cases enhanced to levels beyond expectation. What once was thought of as depleted and aged oil fields are turning into a bonanza for some oil companies. These near abandoned oil wells are showing a profit without huge exploration and drilling costs.

Carbon dioxide gases once expelled into the atmosphere from coal fired furnaces and generators are now being sequestered and diverted into heavy crude wells. Aged fields are being brought back to life. Production of most fields can be extended by many years. Oil, which was once to viscose to flow, is liquefied through carbon dioxide injection.

Wells that once trickled a few barrels of heavy crude, or even stopped producing are reaching production levels unheard of. The SAGD technology developed for the tar sands is finding its way into heavy crude oil wells.

One small innovative Canadian oil company, Petrostar Energy (PEP), has developed an in-well heating device that may be lowered 5000 feet into a heavy oil well. Electrical energy turns water into steam liquefying heavy crude. Once non-productive, these wells can be brought back on stream with a fraction of the cost of a new well.

High exploration and drilling costs may be slowing new development but signs show that innovation and new technology is paving the way to better recovery. Where there is innovation there will be profitability even in times when costs are increasing at a very fast pace.

By J. Klemchuk

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