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.As early as the 1860s, geologists identified the formations which "paid out" oil.InPennsylvania, the most important formation was the "third sandstone," at 300-800 ft., and if this did notproduce oil (you hit a "tight" spot), the well was abandoned.Chance of SuccessPlease note that if you are drilling in "rank wildcat territory" on the basis of detection of oil signs, yourchance of striking oil is probably on the order of one in thirty.Even with knowledge of favorablegeology (you are probing an anticline), your chance of a strike is only about 10%.(Anderson, 95-6).It can be argued that if you are exploring a region on the basis of twentieth-century knowledge, that thechance of success is higher.And I would agree, if your twentieth-century sources specify the location ofthe "known" oil field with an accuracy of about one mile.That isn't likely to be the case, so you need to budget with the expectation that some of your wells willbe dry.If you are drilling in a known oil field, the chance of success is closer to 75% (you could still hita region where the reservoir rock is impermeable).file:///K|/eMule/Incoming/Flint,%20Eric%20-%20Ring%20.Gazette%20Vol%204%20(.html%20v3.0)/1011250008__10.htm (21 of 31)4-1-2007 2:19:52 - Chapter 10Completion and Production CostsCompleting a productive well (putting in casing, constructing gathering lines and temporary storage,dismantling the derrick and rig, setting up the pump, etc.) might add 50% to the cost of drilling it.Once production begins, costs are minimal if you sell the oil "at the wellhead" (i.e., the customer paysfor transportation).If the well has to be pumped, there will be lifting costs; figure five to twenty cents abarrel.Your ability to recover your exploration and drilling costs is going to depend, in part, on the productivityof the well.The average well produces perhaps ten barrels a day.(Ball, 137).Storage tanks give you the ability to wait out a temporary drop in crude oil prices.The Price of OilThe impetus for the drilling of the 1859 Drake Oil Well in Titusville, Pennsylvania was a report byProfessor Benjamin Silliman, Jr., that "rock oil" could be refined, in place of whale oil, into kerosene foruse as a lamp fuel.The Drake petroleum sold for about twenty dollars a barrel.A barrel, by the way, waslater standardized as 42 gallons.Thousands of miles away, Galician villagers hand-mined oil seepages, and sold their oil on the localmarket for a price of $140 a ton (likewise about twenty dollars a barrel) (HBS 3-4).Seepage oil was soldin Europe at least as early as 1480 (HBS 2), and I suspect that both supply and demand were constantuntil oil from drilled wells became readily available.In America, as both demand and supply increased, the price stabilized to some degree.Overall, from1880 to 1970, the average crude oil price was usually close to one dollar a barrel.(The "real" crude oilprice, in 1991 dollars, was five to fifteen dollars a barrel during the same period.)It is difficult to predict what oil prices will be like in the 1632 universe.Unlike America in 1869, theUSE has plenty of uses for petroleum.However, it is also able to exploit nearby natural gas and coalreserves, and petroleum will have to be priced competitively with these alternative fuel and organicchemical sources.The Pipeline Businessfile:///K|/eMule/Incoming/Flint,%20Eric%20-%20Ring%20.Gazette%20Vol%204%20(.html%20v3.0)/1011250008__10.htm (22 of 31)4-1-2007 2:19:52 - Chapter 10The first successfully completed oil pipeline, two inches in diameter, built in 1865, carried 1,900 barrelsa day a distance of six miles, and charged customers one dollar a barrel.I estimate that the cost of thepipeline was about $15,000-25,000 (based on Giddens, 142 et seq.).A turn of the century Gulf Coast sixinch pipeline, delivering 7,000 barrels a day to the refinery, cost $5,400 to 6,500 per mile.(WilliamsonII, 87-8).The Refinery BusinessIf the oil field is far away from the USE, you will probably want to build a refinery nearby.You thenexport the refined products rather than the crude oil; this is more cost-effective.The cost of building arefinery depends very much on its processing capacity and sophistication.At the low end, in 1860, asimple still, with a five barrel a day capacity, cost $200.This was probably good only for producingkerosene.If you want multiple fractions, then you are going to be spending more money for the samerefining capacity.Whether it is desirable to refine the crude yourself depends on the profit margin.In early 1863, forexample, crude oil was selling for two dollars a barrel (less then five cents a gallon), while refined oilbrought in forty cents per gallon
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