Oil And Gas Finding Costs In The United States
Authors: Keplinger C.H. 
Published: December 2007

The future of oil and gas supplies, in part, depends on the capital that is put into the discovery and production of oil and gas. We have had many informative studies directed toward the capital needs in the United States to develop adequate energy supplies. The Bankers Trust study, entitled "Capital Needs for U. S. Energy 1975–1990," indicates that the U.S. petroleum industry alone would require $333 billion with no consideration for compounded inflation rate for the 15-year period. Thus represents an enormous amount of capital that must be infused into the petroleum industry to make a viable energy supply. Similar studies by Chase Manhattan's Energy Economics Division and by Bechtel Corp.'s report by Snyder in 1975 confirm that this capital requirement is realistic. When you consider that we will have inflation and if the 10% per year inflation rate is used, the capital requirements will be more than double the $333 billion figure of Barkers Trust.

It is, therefore, very important to have a realistic estimate of oil and gas finding costs that will make up a large part of the future required capital for the petroleum industry in the U.S. The past trends in finding and development costs of past trends in finding and development costs of petroleum in the U.S. have been increasing over the petroleum in the U.S. have been increasing over the years but show a rather steep increase in costs since the late 1960's. There probably has been a four- to fivefold increase in finding and development costs during the last 10-year period. This means that the capital requirements will increase much more rapidly than in the past so that in order to have a viable petroleum industry we must have oil and gas prices petroleum industry we must have oil and gas prices equal to the replacement cost of petroleum. Unless the oil and gas prices in the U.S. are equal approximately to the replacement cost, the petroleum industry will not be able to acquire the capital needed to replace the oil and gas being produced.

In order to determine the oil and gas finding costs that could be utilized in studies such as the Bankers Trust, Chase Manhattan Bank, Bechtel, and other institutions making these studies of future capital requirements, this paper investigates the oil and gas finding costs in the U.S. for a 3-year period, 1974 to 1976. The basic data utilized has been the estimates of ultimate reserves discovered in the United States for the respective years as estimated by the committee of the American Association of Petroleum Geologists. The committee has published Petroleum Geologists. The committee has published these reserves, and in Appendixes I, II, and III, the summary of this data is included for 1974, 1975, and 1976 taken from bulletins of the AAPG. This data, by years, indicates the estimated oil and condensate discovered, together with the gas. This paper utilizes this information because it was paper utilizes this information because it was prepared by a large segment of the geological prepared by a large segment of the geological industry who was familiar with the activity in all parts of the U.S. It is possible that the data may parts of the U.S. It is possible that the data may be conservative because the exact limits of some of the oil and gas discovered were subject to change with development; on the other hand, there could be optimism indicated for certain fields that did not drill out according to original estimates. However, in reviewing the reserves discovered for the individual years, the estimates are considered reliable and are used in our study. The estimates of exploration costs are taken from a joint association study of these costs, which was sponsored by the American Petroleum Institute, the Independent Petroleum Association of America, and the Petroleum Association of America, and the Mid-Continent Oil and Gas Assn. These data have been collected over a period of many years, utilizing the best information available from both industry and government sources. Information for 1971 to 1976 is included in Appendix IV. The data for 1976 is estimated. This information is in great detail and covers (1) drilling and equipping exploratory wells, (2) acquiring undeveloped acreage, (3) lease rentals and expense for carrying leases, (4) geological and geophysical expense, (5) contributions toward test wells (6) land department, leasing, and scouting costs: (7) other direct overhead charges, and (8) general and administrative overhead allocated to exploration. A summary of these costs by years for total exploration is as follows.

1974 $8,901,000,000 1975 $5,779,000,000 1976 $7,533,000,000 (estimated)