Oil And Gas Production Capacity Essay

Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010). Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and yet certain issues will always arise. This case attempts to tackle two approaches in real asset valuation: Discounted Cash Flow (DCF) analysis and the issues surrounding such, as well as the Black-Scholes Model for Real Options. Questions to be addressed in the study are:

Currently Saudi Arabia is one of the leading producers of oil in the world. However, it is losing its foothold on the market. Many countries, like North America, are increasing their oil production and are looking for ways to become less dependent on foreign oil. The increased competition has caused oil prices to decrease. By producing their own oil, countries not only will increase their revenues, but will also reduce their need to rely on foreign oil. By reducing their need foreign an oil a country does not have to worry that their oil supply will be cut off if they go to war.

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

For the United States, the Gulf region remains one of the most geo-strategically important locations in the world for diplomatic, intelligence cooperation, and business opportunities such as hydrocarbons and arms. This strategic cooperation has provided the region some stability, particularly with the rise of Iran and the Shi’a crescent and the chaotic outcome of the war in Iraq. The council members have also relied on the United State to fend off some of the domestic challenges to the existing regimes that are both internally and regionally rooted.

[Oil production has jumped from 5.0 million barrels per day in 2008 to 7.4 million last year and is expected to average 8.5 million this year and 9.3 million next year, according to the EIA, the analytical arm of the Department of Energy.” (Koch par. 2)]

It is estimated that 1.3 trillion barrels of oil reserve is left in the world’s major fields (Institution of Mechanical Engineers 2015). At present rates of consumption this will be enough oil to last approximately 40 years. By 2040, it is intended for production levels may be down to 15 million barrels per day which is approximately 20% of the amount of oil which is currently being consumed (Institution of Mechanical Engineers 2015). It is likely by the year 2040 that the world’s population will be twice as large (United States Census Bureau 2015). Additionally, it is likely that more of the world will be industrialized and therefore more dependent upon oil.

Moreover, US drilling climbed from a 2 year high by another 10 rigs to 1706 working compared with 1161 the previous year. Land drilling total was 1683 rigs and offshore was 23. 948 were drilling for natural gas and oil rigs increased to 763. Seasonal conditions for rig movement improved caused an increase in rigs to start drilling (OGJ). These rigs work around the clock using three shifts and costing the oil companies $45,000 a day to run. Doing the math it cost $76.77 million to run all the rigs per day. The military spent about 1 trillion dollars in Middle Eastern operations over the years for oil. Private companies are spending an extraordinary amount of money to bring the fuel to the surface. Unfortunately, their efforts are not enough to meet demand.

Kuwait is one of the 12 members of the OPEC countries, the Organization of Petroleum Exporting Countries. According to the organization, these members produce about 81 percent of the total oil produced in the world. In the recent past, there have been rumors about the country not producing as much oil as it is proving that it does (Cobb, 2012). It cannot be said with certainty whether or not the oil reserves of Kuwait are depleting, however, this subject is important for discussion because the whole world depends on oil reserves of the major oil producing countries. All the issues, economic or political, revolve around one country wanting to take over the other for its all reserves. In this paper, we shall discuss the presence of oil reserves in Kuwait and some news pertaining to their depletion and overstatement. We shall also address this topic in another aspect; the oil depletion protocol.

Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010).

In late 1990, the group of Amoco Corporation and Apache Corporation had begun talking regarding the possible acquisition of MW Petroleum from Amoco to Apache. MW Petroleum Corporation is a wholly owned subsidiary of Amoco Corporation which has its own reserves, management team and with full ownership in geologic and engineering data. MW Petroleum, a free-standing exploration company that was even as large as some of independent oil companies. It operated exploration and development for well, approximately working interests in 9,500 wells in 300 production areas. The growth of MW was very attractive to the other investors, which company grows 30%

crude oil allowed in at the bottom of the tower at a time so that the

The world is depended on oil and soon oil will become more valuable than gold and could lead to a worldwide war. Price for oil could soar to above two hundred fifty dollars per barrel. Oil and other fuel cell also cause green house gases which contribute to global warming. China is consuming two times more petroleum than 1996 and India is projected to consume three times the oil it currently does by 2050. Global house gas emission has increased by twenty percent from 2003 to 2006. Energy consumption has increased exponentially throughout the globe. The U.S. department of energy projects energy consumption will increase seventy percent from 2003 to 2030. The world has agreed to reduce emission by twenty five percent before 2020 and by over

Proven oil reserve is the portion of oil in a region that can be technically and economically recoverable under certain political conditions. It is possible for a resource of billions of barrels to result in zero proved reserves, which was the case of Venezuela with the heavy oil in the Orinoco Belt that was expensive to extract and refine. With over 298 billion barrels of proven reserves, Venezuela is recognized as the country with the highest oil reserves in the world. There have been discovered huge sand deposits, similar to those in Canada, but they are less viscous than Canada’s, so those oil sands in Venezuela can be extracted by using conventional methods, which has an advantage over Canada’s due to its requirements for extraction and lower costs.

The oil industry can not be discussed without mentioning the name John D. Rockefeller. Rockefeller changed the business of oil distribution. In the 19th century Rockefeller began his humble beginnings with a small investment, along with two other partners, in the oil refining business. Eventually Rockefeller upset at the direction of the company bought out his partners. He was now buying into refining and developing kerosene and other petroleum-based products. He later named this company The Standard Oil Company which by 1872 nearly owned all the oil refineries in Cleveland. In 1882, Rockefeller took all his holdings and merged them into the Standard Oil Trust. Through smart business

World oil demand is increasing as emerging economies need more energy to increase their living standards. Estimates, shown below, are that by 2030, China and India as emerging markets will import over 70% to 90% of their fossil fuel needs (1) . Coupled to a continued high and growing demand for oil, makes this a robust market for the next 30 years.