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Friday, September 30, 2005

Barrel for $3

According to Ian Welsh at BOP News, the $13.1 billion sale of a stake in Sibneft to a Russian state owned firm amounted to $3 per barrel of estimated oil reserve (with the natural gas holdings tossed in as a freebie). Welsh pointed out the sureness of this bet. Given today's pricing and the future trend, a wise oil investor could never pass up such a deal.
proved oil reserves (2002 estimate) — 4,575 million barrels,
proved natural gas reserves (2002 estimate) — 860 billion barrels
Or could they?

What happens when someone reveals that Sibneft exaggerated the reserves wildly? Paying $3 per barrel can't get the investors too upset when they ultimately start coming up dry. After all, they only paid $3 a barrel. But what would have happened if the state paid a market value and then realized they got gipped?

In retrospect it will seem like a sucker's bet ending in a zero-sum game among the oil wheeler-dealers; the public will remain the suckers for not seeing through this charade.

Once again I think the this news of the sale tells us more about the precarious nature of global oil reserves than anything else.


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