Chapter 14

Question 1

crude oil

Answer 1

naturally formed liquid hydrocarbon extracted from earth

Question 2

hydrocarbons

Answer 2

collections of molecules consisting almost entirely of hydrogen and carbon

widely available and high-density source of combustible energy

Question 3

API gravity

Answer 3

measure by American Petroleum Institute

measures how heavy or light a petroleum liquid us

the higher the API gravity, the less dense the liquid is.

light crude = easier to pump and transport b/c lower concentration of wax in crude oil.
medium crude
heavy crude = harder to pump, requires more processing to break down into useful refined fuels (so usu. cheaper)

Question 4

bitumen

Answer 4

AKA extra-heavy crude.

have API gravity less than 10, the type of oil found in tar sands

Question 5

sulfur content

Answer 5

another important consideration when looking at crude oil quality.

amount of sulfur is measured as a % of the weight of the crude oil.0-3.5%. lighter oil tends to have less sulfur.

sweet vs sour (high sulfur) crude

Question 6

associated gas

Answer 6

natural gas (methane) that comes out of an oil well (oil + nat gas)

Question 7

condensate

Answer 7

some of these hydrocarbons exist as gas under the pressures and temps inside the reservoirs, and condense into liquids as these are reduced at the surface – these are called condensates

condensate can also be captured from nat. gas extraction and processing facilities

Question 8

horizontal integration

Answer 8

acquiring similar firms in the refining business to gain scale and market power

(e.g. Standard Oil, refining company of Rockefeller, controlled 88% of refining in US by 1890)

Question 9

vertical integration

Answer 9

acquiring companies that either supply vital inputs (upstream acquisitions) or are a buyer or distributor of the company’s product (downstream acquisitions)

Standard Oil became monopsony buyer of crude from oil producers and was able to set the price at ITS optimal level

Question 10

cartel

Answer 10

when firms collude to establish higher price levels that allow firms to stay in business

Texas Railroad Commission (reduced the amount of oil that could be produced in TX by all operators to stabilize prices)
Seven Sisters
OPEC

see chart p. 497

Question 11

exploration

Answer 11

represents all of the steps in the process of identifying and examining site for geological potential to hold commercially recoverable quantities of oil or gas

Question 12

flow rates

Answer 12

the natural rates at which oil and gas emerge from the well

Question 13

well completion

Answer 13

these steps:

(1) a well has been drilled to the desired depth and protected with casing and cement
(2) drilling rigs are removed
(3) additional equipment is installed to prep the well for max. sustained production

involve evaluation, stimulating, installing production equipment in the well, and connecting well to a collecting/gathering infrastructure

Question 14

recovery rate

Answer 14

percent of hydrocarbons in the reservoir recovered

involves primary recovery, secondary recovery, enhanced recovery

Question 15

enhanced recovery

Answer 15

aka tertiary recovery. represent a collection of additional techniques to stimulate movement of hydrocarbons within the production zone, including steam injection,

has the capacity to recover another 5 to 15% of the hydrocarbons

Question 16

unconventional oil

Answer 16

includes oil sands, tight oil, and oil shales that have the potential to be produced in the future. requires different techniques for extraction.

represents less than 10% of current global oil output
is forecast to make up all of the new oil supply added globally in the future

Question 17

distillation

Answer 17

aka fractional distillation, involves heating crude oil to progressively higher temperatures and allows each of the progressively heavier hydrocarbons to boil off, separating crude oil into light, middle, and heavy distillations that can be further processed

Question 18

resources

Answer 18

available aggregate amount of oil within a reservoir or field, all of the potential hydrocarbons within an area,

starts with Oil Initially in Place or Gas Initially in Place

Question 19

reserves

Answer 19

those quantities of commercially recoverables oil in known accumulations that must be

(1) discovered (clear dfn of OIIP)
(2) recoverable using existing technology
(3) commercially viable
(4) remaining in the ground

Question 20

proven reserves

Answer 20

meet reserves definition AND also requires that discoveries be confirmed to a high likelihood with acceptable technology.

min. asset base that oil company expect to monetize in the future

proven reserves, 1P, P90 = 90% probability of recovery
probable reserves, 2P, P50
possible reserves, 3P, P10 reserves

Question 21

implied carbon price

Answer 21

asset owners and investors assume that there are a possible future carbon price and so operate under the assumption of an implied carbon price

Exxon-Mobil and Shell already perform their own international investment analysis using an implied carbon price in their calcuations