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Petrocapita June 20, 2012 Update

Petrocapita June 20, 2012 Update

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Published by Capita1
From 1936 to 1945, Alberta was in default on its provincial debt, managing only partial coupon
payments and no principal repayments. Out of cash and out of options, Alberta did what every bankrupt EU country wishes it could do again - Alberta started printing its own currency. Of course Alberta didn’t call it that, this fiat currency came with the nifty moniker of Alberta Prosperity Certificates (“APCs”).
From 1936 to 1945, Alberta was in default on its provincial debt, managing only partial coupon
payments and no principal repayments. Out of cash and out of options, Alberta did what every bankrupt EU country wishes it could do again - Alberta started printing its own currency. Of course Alberta didn’t call it that, this fiat currency came with the nifty moniker of Alberta Prosperity Certificates (“APCs”).

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Published by: Capita1 on Jun 20, 2012
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06/20/2012

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Petrocapita UpdateJune 20, 2012
 
1
CAN THE MARGINAL COST OF PRODUCTION TELL US ANYTHING ABOUT FUTURE OIL PRICES?
Oil prices have recently dropped on concerns relating toboth growth and supply. Falling back on rst principles, canwe make any predictions about prices over the mediumterm? Obviously, it is the cost of the marginal barrel of oilthat sets prices at any given level of demand. According torecent analysis by Bernstein and the Wall Street Journal,in 2011 the production cost of the incremental barrel of production was
“$92.26 for the 50 largest listed oil and gascompanies and will reach $100 a barrel”
in 2012. 
Petrocapita Update
$1007550250
RISING COSTS
Marginal cost of oil productionfor the 50 largest energycompanies, price per barrelEurope Brent crude-oil, weeklyspot price per barrel
2001 ‘03 ‘05 ‘07 ‘09 ‘112001 ‘03 05 ‘07 ‘09 11
Sources: Bernstein Research; U.S. Energy Information Administration (oil price), The Wall Street Journal
$150100 500
Unsurprisingly, the WSJ stated that incremental barrelcosts are
“rising because much of the extra oil added toworld supply has come from more technically challenging areas such as deep water or the Arctic”
which resultsin
“a combination of higher material costs and reduced  productivity per well.”
 
 
2
Petrocapita Update (continued)
 Viewed another way, how much would demand haveto fall to create sustained $80 prices? Looking atthe chart produced by Cambridge Energy Research Associates (“CERA”) below, it is on the order of 10million bopd or around 10% of daily demand i.e.if demand were to fall to around 80 million bopdthe last 10 million bopd on the right side of thechart would be unprotable production and wouldeventually be shut-in. 
 ALBERTA’S FORGOTTEN DEBT DEFAULT -PROSPERITY CERTIFICATES WITH NEGATIVENOMINAL INTEREST RATES TO BOOT!
From 1936 to 1945, Alberta was in default onits provincial debt, managing only partial couponpayments and no principal repayments. Out of cashand out of options, Alberta did what every bankruptEU country wishes it could do again - Alberta startedprinting its own currency. Of course Alberta didn’t callit that, this at currency came with the nifty monikerof Alberta Prosperity Certicates (“APCs”): 
10090807060504030201000 10 20 30 40 50 60 70 80Cumulative Oil Production (mbpd)
   C  o  s   t  o   f   P  r  o   d  u  c   t   i  o  n   (   2   0   0   7   )   d  o   l   l  a  r  s   )
Saudi ArabiaOther MiddleEastRussianFederationChinaLibyaMexicoUK North SeaBrazil Deep WaterUS Gulf of Mexico Deep Water Angola Deep WaterNigeria Deep WaterCanada Oil SandsOther South and North AmericaOther South America, Europe,Eurasia, and AfricaOtherNorth America

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