Ferrari Mailing List: Re: Oil company bail-out

[rolindsay (rolindsay]

Thank you John. 

Let me expand the story of the government's profits. 

Not only does the government make three times the profit on each gallon of fuel 
sold - for no work other than ringing their cash registers - they also;

1) Lease the offshore acreage to oil companies. In the Gulf of Mexico those 
leases are 3 miles x 3 miles 'blocks' and the minimum bid for a 10 year lease 
is about a million dollars.  But it doesn't end there. Oil companies compete 
via sealed bit for the leases. $20mm to $50mm per block is not uncommon!  All 
of this paid years in advance of drilling. 

2) A typical deepwater Gulf of Mexico well costs about $100mm. This money is 
paid to contractors, including the drilling company. No, we don't own our own 
drill rigs. 

3) Typical success rate in the deepwater GoM is one-in-five so on average 
$500mm - a half billion dollars - is spent to make the discovery. 

4) Typical time from exploration to the first drop of oil in the pipeline is 
8-10 years!!!  Yep, that's a half-billion dollars spent a decade in advance so 
we can give 1/6th of it to the feds. By the way, what is the price of oil in 
2019?

5) Yes, that was no typo. The government gets a 1/6th royalty on every barrel 
produced!  So right off the top, Uncle Sam gets about 16% additional profit 
from every drop produced added to their coffers! 

The point here, other than the government's fingers in everyone's pocket, is 
that oil companies HAVE to make a large profit because our business is SO 
capitol intensive with huge lag times for payouts. 

I'm not complaining about the business I have chosen. I'm trying to expose a 
little of our exactly-unlike-Walmart business model because television news 
shows and 'specials' make it sound so simple. Halve the price of a barrel of 
oil, halve the price of a gallon of gas. Easy, eh? If only...

Happy Sunday Morning,

Rick
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