is made, the company might have a problem generating capital to develop 

 the field, as well as the considerable tine lags before the field 

 would be on-line generating an incoming cash flow. In a remote and 

 hostile area, such as Alaska, the huge front-end investment costs and 

 the estimated 5 to 8 year span between discovery and production may 

 exclude all but the largest and most wealthy of oil companies--and they 

 create joint ventures to spread the costs and risks in major 

 development. 



To assess the risk of investing in offshore oil resources from an 

 industry point of view, the following major factors need to be 

 considered: 



1. the physical costs of installing and operating producing 

 wells and facilities for various water depths and climatic 

 conditions; 



2. the cost of exploratory dry holes (up to $1 million each) 

 that must be paid for by production from successful 

 wells; 



3. nonphysical costs such as royalties, taxes, bonuses, and 

 the cost of capital including required return on 

 investments; 



4. size of the oil/gas field, physical characteristics and 

 productive capacities for a single producing facility; 



5. the timing of technical capability for operating at various 

 water depths and climatic conditions, assuming that the 

 current state of the art precludes operations under ice 

 conditions or in depths in excess of 3,300 feet (1,000 m); 



6. estimated costs of other fuels with which offshore 

 petroleum must compete; 



7. marketing costs and considerations (e.g., need to 

 maintain market leadership in a given area). 



Offshore oil development can be economical under a wide range of 

 reservoir size, water depth, and climate conditions. Economic feasibility 

 rapidly diminishes as reservoirs become smaller, water deeper and climatic 

 conditions more severe. It must be realized that the petroleum industry 

 does not profit from exploring for oil; its profits come from 

 production and marketing. Geological and geophysical surveys and 

 exploratory drilling operations, though necessary to assure the industry's 

 long-term survival, are regarded as speculative ventures by the industry. 

 When industry's profits fall, exploration expenditures are curtailed and 

 emphasis is placed on developing already discovered reserves. This 



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