Per the first point, I think the big thing would be that a lot of oilfields that may only be profitable at a certain oil price would start dropping below that. As you point out, low oil prices would drastically reduce exploration and development of fields that aren't "easy". Which as I understand it, is many of the ones in the US. So the Saudis would likely be fine, while we'd feel the crunch in the US oil & gas industry. (Isn't there someone on the board from that industry? @Gigem or @Riffraft maybe? Would love to hear from an expert.)
I'm not an expert but my brother used to work on Oil Refineries (he is an engineer) so I've learned more than the average person.
First I'll try to explain some things regarding "oilfields that may only be profitable at a certain oil price." There really aren't many on a marginal basis.
Current Oil price (just googled) is $83.12. That is per barrel. If you look REALLY closely, the quoted price that you hear on the news and see in the financial news is for something called "Light Sweet Crude".
Light/Heavy IIRC is somehow related to the length of the hydrocarbon chains in the oil.
Sweet/Sour IIRC is related to Sulphur content. Ie, Sweet is low Sulfur and sour is high sulfur.
The exact details aren't all that important just suffice to say that the price you see quoted is for the BEST oil. Everything else sells at a discount to that price.
Lets say that you (in California) and I (in Ohio) each own an oil well. The marginal costs are typically very low to the point of being nearly insignificant but lets say that it costs us each $20/bbl to pump and store our oil and get it to the Point of Sale (POS). Now lets say that your oil in California is high quality "Light Sweet Crude" while mine is crappy "Heavy Sour Crude".
I don't know exactly what the discounts are but the details aren't important for this example, lets just say that my crappy oil sells at a 50% discount off the list price. Further, lets round that $83.12 (see above) to an even $80 just to make the math easier for this example.
Ok, based on all of that currently:
- You are spending $20/bbl to sell oil for $80/bbl so you are making $60/bbl.
- I am spending $20/bbl to sell oil for $40/bbl so I am making $20/bbl.
We can plug this into your comment about oilfields only profitable at a certain price. My oil is break-even at a price of $40/bbl, yours is break-even at a price of $20/bbl. Thus, even if the price drops by half, yours will still be profitable ($40>$20) while mine will break-even ($20=$20).
The marginal costs are VERY low so as a practical matter, almost any existing field is going to be "profitable" at any reasonably plausible price. The issue isn't existing fields, it is new ones. I'll do another example:
Lets say that instead of owning oil wells, we each own property on which an oil well COULD be drilled. Let's say that your property is a SoCal desert and the Oil under your property is near the surface. Conversely, my property has a HARD layer of Limestone or Granite between the surface and the oil and the oil under my property is DEEP, thousands of feet below the surface.
Sand is easy to drill through and I stipulated that your oil is near the surface anyway so your oil well can be installed relatively cheaply. Limestone/Granite are MUCH harder to drill through and I stipulated that my oil is DEEP so my oil well will be much more expensive. So for example:
Let's say it would cost $100,000 to install a well on your property and that well would produce 100bbl/month. Then lets say that it would cost $1 Million to install a well on my property and that the well would produce the same 100bbl/month. Currently:
- Using an $80 price for Crude and $20 for pumping, storage, and transport, your well would earn you $6,000/month (100*$60). At that rate you could pay off the $100,000 installation cost in a little under a year and a half and after that you'd have a nice $6,000/mo in extra cash (before taxes).
- Using the same $80 and $20, my well would also earn $6,000/month. The problem is that my well costs 10x what yours costs so it would take me 167 months or almost 14 years to pay off the costs of installing the well.
Yours is CLEARLY worth it. Mine is questionable. If my oil was the crappy oil from example #1, mine clearly wouldn't be worthwhile to install because the payoff period would be around 40 years. However, mine IS worth using if it is already installed because once the $1M installation cost is paid that is a sunk cost and I might as well pump.
