Something that hasn't been discussed yet is the recovery rate of any given well. The oil companies goal is to maximize returns from every well they drill. That means that they want to drill the cheapest well possible and get the most product out of the ground and to market.
*Gross oversimplification to follow
For any given well there is a certain amount that you can recover with a minimal amount of work but if you put in more effort in you can recover more from the same well. THis is achieved through fraking, proper spacing, drilling injection wells nearby and many other methods. In the end the first barrel to get is the cheapest while the last barrel is the most expensive. As the royalty rates go up this makes the last barrels uneconomical so those aren't produced. In a lot of cases they only have one attempt to do it right. For example if they use a cheaper fraking system they will leave some oil in the ground forever.
You seem to be looking at the system as if the choices are drill now and get the money from lower royalties or raise the royalty rate and drilling will slow down but will happen in the future as prices increase or supplies run out in other regions. The system is far more complicated than that and higher royalties could permanently lock more resources in the ground.
Also, because you brought up fair returns for oil companies I am curious what you would consider fair returns. Is 1% profit ideal, 10%, 25% or some other number.
|