[fleetwood]

It seems unlikely the ratio of (oil consumed by production):(oil production) is greater than 1:1. If it was greater than 1:1 - e.g. 10:1 - wouldn't the production company simply sell the 10 barrels instead of using the 10 barrels to produce and sell 1?

[inertiatic]

Not really. You need to drill to make any oil. So if you drilled and spent 10 parts to make it happen (flying people there, energy to drill etc.) and extracted 11 parts, you're selling 1 of those and then using the next 10 to mine the next 11 to get another 1 to sell. It would still make sense economically as long as you were turning a profit overall (so factoring the total cost into what you're actually selling), although it would be a huge waste in absolute terms.

I do doubt that would be a realistic estimate though.

[fleetwood]

I see what you mean. That's more interesting than I originally thought.

If a company has a hypothetical 10 barrels of oil on hand, and is given two choices: (1) do no work and sell the 10 barrels; (2) do work, use the 10 barrels, and have 11 barrels left over to sell or use again

Why would the company choose option 2? Option 1 is both easier and results in 10x the immediate value. I suppose over enough cycles (i.e. >10x), the "1 additional barrel per cycle" will add to more net barrels sold to market.

But with any meaningful discount rate, the time value of money would almost certainly be greater for option 1. Maybe fracking was a ZIRP phenomenon.

[pests]

Aren't you guys just describing how business works?

You have 10 dollars. You can keep the 10 dollars and then have 10 dollars. Or you can invest that 10 and earn 11.

Or, in a real situation:

Walmart had 12B in revenue with 2% profit margin for 2023. It sounds like they started with 11.9B in money, bought inventory and paid their expenses, and after selling everything wound up with 12B.

How is this different to spending oil to make oil?

[kortilla]

2 is way way better of an option. You’ve just described a process that grows your resources by 10% each iteration. Unless it was very expensive or high risk, it’s a no brainer.

[brewdad]

With option 1 you end up in the old meme of

1. Sell 10 barrels 2. ????? 3. Profit

After you’ve sold the ten barrels, now what? There are no more barrels and no more coming since you chose not to drill. You have to shut down and do something else with whatever money you made from the sale.