With the fall of prices due to the credit crunch and the global economic slowdown, many of the Oil and Gas Companies deferred their offshore drilling and exploration programmes while some cancelled them. The primary reason for these deferments and cancellations of offshore drilling and exploration was the economics of extracting oil. The cost of extracting crude oil varies from US$ 2 a barrel to more than US$ 40 a barrel depending upon the geographical conditions, environmental conditions, etc. Therefore, if oil prices are low, the risk associated with offshore exploration in a region where the cost of exploration is high increases several fold. Such projects become unviable or un-attractive leading to deferment of projects or scrapping of projects.
The costs associated with the exploration of Oil or Gas is fixed and high but the yield is uncertain. This is another deterrent and discouraging factor for Oil and Gas Companies not to take up expensive offshore exploration ventures, if the price of crude oil is not lucrative.
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