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Oil Stocks May Be A Big Win In 2015

The basics of oil production are pretty simple - companies drill a well and if it finds oils they put it on stream. The major capital costs are upfront, and production follows for years to come. The variable costs of production are relatively low and royalties and taxes are usually tied to selling prices and are variable costs. As a result, once a well is producing oil companies are loathe to shut it in since even at low prices the well is very likely to produce positive cash flows. Production is highest when the well is first placed into production and tends to decline each year thereafter, a phenomenon often called the "droop" or "decline…