Why was the exploration drilling of the deep water Macondo prospect rushed out after the oil crash of 2008?
The Macondo prospect had a predicted recoverable reserve of only 50 million barrels. With deep water Capex costing more than a minimum of one billion USD, the exploration of deep water prospects makes sense only if the recoverable reserves are larger than 1 billion barrels of oil. With deep water production costs varying from $70 to as high as $90 per barrel, which astute investor would want to subsidize $35 to $55 per barrel of production cost?
Offshore wages, drilling costs and associated logistics costs were all still at historical highs by the end of 2008. Their rise was fueled by the exploration boom starting 2007 and peaking in late 2008. The exploration costs would have slowly come down to more manageable levels if oil prices had stayed in the lows of $50/barrel.
The drilling of the Macondo wells has a different agenda from the normal economic exploration objectives as we shall see in the coming articles.