What Do Low Oil Prices Mean For Unconventional Extraction Methods?

ROBERT SIEGEL, HOST:

When the price of oil is very high it, makes sense to buy a truck or to build an offshore drilling platform. As we've just heard, when the prices go way down, some of those sensible decisions become too costly to pursue. What about drilling in the Arctic Ocean or plying the tar sands of Canada? Do those $90-a-barrel decisions still make sense when the price of oil's in the 40s? Well, Barbara Shook is a senior reporter at large an analyst at the Energy Intelligence Group. She spent years covering the oil and gas industry and joins me from Houston. Welcome to theprogram.

BARBARA SHOOK: Thank you very much.

SIEGEL: We're looking today for a bit of a scorecard here, Barbara. For example, in Alaska, where President Obama recently OKed exploration in the Arctic Sea, what's the price point where it makes sense for a company to make a massive investment in Arctic Sea oil platforms?

SHOOK: No one knows on that particular project except Royal Dutch Shell. The price could be $60. The price could be $80. But whatever it is, it's not $40. If I were going to place a bet, I would say someplace in the $80-per-barrel range.

SIEGEL: Eighty dollars per barrel range - tar sands - oil from tar sands - is there some price point people doing that have in mind at which it makes sense and below that, it doesn't?

SHOOK: Probably a minimum of $50 a barrel U.S. It's cheaper in Canadian dollars because they pay their bills in Canadian dollars.

SIEGEL: Well, if I'm in the oil business and I'm looking for a project that really checks out at $80 a barrel, and the prices down here, you know - in the high-40s today - do I really wait, or do I just assume, look, the price is going to come back up at some point? I can build it before it's the right price for a barrel of oil because I assume three, four years out, it'll be a different market.

SHOOK: Are you ExxonMobil, or are you mom-and-pop drilling company?

SIEGEL: (Laughter). Well, let's say...

SHOOK: Are you, you know...

SIEGEL: Let's say I'm mom-and-pop - I guess the answer, if I'm mom-and-pop - don't do it, is what you're going to tell me.

SHOOK: That's correct.

SIEGEL: And if I'm ExxonMobil...

SHOOK: How big is the project? What - how does it check out against a sleight of variables? Is the - this in a politically stable location? How big is it?

SIEGEL: So you're saying size matters and the bigger, the more likely I am to invest in it.

SHOOK: Absolutely.

SIEGEL: By the way, is there some moment in recent history - the '80s or whenever it was - that people in the oil business will constantly cite for wisdom when they look at the current low price of oil

SHOOK: They will compare today's circumstances to the 1980s. And they don't want to repeat the 1980s, for sure.

SIEGEL: What's in the mind of any oil person when they think of what went wrong in the 1980s?

SHOOK: I think, first and foremost, is the number of people who were laid off. Millions of people lost their jobs in the 1980s. And it affected recruiting for companies for decades after - still does, in fact. A lot of college students who have the choice between going to work for an oil company are going to work for another kind of technology company - might choose to go to work for Apple rather than for Exxon.

SIEGEL: So part of a lesson would be, don't expand in ways that you'll regret very shortly and end up laying off the very people you've been able to attract.

SHOOK: Yes. They want to protect the best and the brightest.

SIEGEL: Well, Barbara Shook, thanks for talking with us about the price of oil and the consequences of it.

SHOOK: It's been my pleasure. Thank you.

SIEGEL: Barbara Shook is senior reporter at large and analyst at the energy intelligence group in Houston. Transcript provided by NPR, Copyright NPR.