ERHC Energy Inc (ERHE)

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badiali on oil mergers
If you have any doubt about the direction oil prices are headed, just take a look at ExxonMobil's latest deal. The world's largest oil company spent $4 billion to buy a 23.5% stake in the Jubilee field offshore of Ghana in West Africa. The companies developing Jubilee – Tullow and Anadarko – estimate the field will cost $4 billion to complete. That puts Exxon on the hook for at least another billion – reflecting its one-quarter stake in the project.

All told, Exxon will sink $5 billion into a field currently expected to produce between 600 million and 2 billion barrels of oil. Even at 2 billion barrels, Exxon's share is just 500 million barrels. That means it's paying $10 per barrel for that oil. If Jubilee yields just 600 million barrels, Exxon's paying $30 per barrel.

That's an astounding price for Exxon to pay for new oil. Over the past three years, the company has spent on average less than $1 per barrel to buy oil in the ground. Now, the company is going to pay at least 10 times that much on a single deposit. Clearly, Exxon either thinks Jubilee is much larger or it believes oil prices will average higher over the next few years.