Getting paid to not drill oil

[kiryan]

Ecuador wants the international community to pay it not to drill a billion barrels of oil. They only want half what the oil would be worth (of course that doesn't include the expenses of drilling). Of course this is a stupid idea. Its not like if they decide next year to drill anyways there is anything any of the donor countries can do.

Maybe next we can pay Russia not to drill the artic. When are we going to get paid?

http://www.huffingtonpost.com/2010/09/2 ... 42178.html

In other related news, we pay all sorts of people not to raise certain crops. One of the worst aspects of the farm bills. I read a "letter" about 15 years ago about a guy who wanted to get paid not to raise cows. This is silliness to the extreme, yet its some of the genius that our elected representatives contributed to this welfare nation. The funniest part is that these farmers can typically "not grow X" and turn around and grow Y and still colelct payments for not growing X.

http://www.washingtonpost.com/wp-dyn/co ... 00962.html

[Corth]

And presumably at some point in the future they would drill the oil anyway and make some nice loot.

[Sarvis]

Seems like OPEC might pay in order to keep oil prices higher right now...

[Corth]

Why would they pay to keep oil prices higher? They could just drill less.

[Sarvis]

Why would they pay to keep oil prices higher? They could just drill less.

Wouldn't that be ineffective if someone else was meeting the demand? They could pay off these guys AND drill less, as well.

[amena wolfsnarl]

As someone who was working in the oilfield when it was booming, they drill more when the prices are high, they also get the well into production alot faster, and also look past those silly safety rules alot easier. When oil prices are high, drilling and construction go like crazy.

[Corth]

Why would they pay to keep oil prices higher? They could just drill less.

Wouldn't that be ineffective if someone else was meeting the demand? They could pay off these guys AND drill less, as well.

The point of OPEC, as a cartel, is to collectively undermine the free market by creating artificial supply constraints. They have a large enough percentage of world oil supply that everyone else producing at peak levels cannot come close to making up for a shortage that they purposefully cause. It would make no sense for them to pay good money to keep Ecuador from producing, because Ecuador's production is basically inconsequential in the grand scheme of things. They would be better off letting Ecuador join OPEC and everyone collectively produces just enough but not too much.

[Corth]

As someone who was working in the oilfield when it was booming, they drill more when the prices are high, they also get the well into production alot faster, and also look past those silly safety rules alot easier. When oil prices are high, drilling and construction go like crazy.

That is a well known phenomon and accounts in large part for the 'boom and bust' cycles in commodities. If prices are high, they explore more, and then all that new oil comes on the market and prices crash. At that point they explore a lot less and soon enough supply starts to drop relative to demand and prices get high again.