Risky Business even at $50/barrel
Category: Economy & Business...
Posted Tuesday, October 05, 2004 at 09:54 AM [GMT-6]

Exxon's recent decision to abandon its ultra-deep exploration well in the Caspian Sea is a hard reminder that the oil business is not simply a pipeline of cash flowing from the ground into the bank account. Sometimes the net flow goes the other way...big time.

Exxon's decision essentially writes off "more than $100 million," before tax, which was the price tag for drilling the 23,250' well. That cost, by the way, works out to $4,300/foot...not the most expensive drilling cost in history but nothing to sneeze at, either. Exxon's share of the loss is 30%, with ConocoPhillips assuming 20% and the Azeri state-owned oil company picking up the remaining 50%.

This has to be a big disappointment for Exxon and its partners, who have high hopes for the Azeri field, with over $1 billion already invested in the field.