Period of Sustained Cost Escalation for Upstream O&G Facilities Ends

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Published at: www.rigzone.com

Stuart GoldsteinOil & Gas Exploration & Production E&P ConsultantStuart Goldstein

2009 is Transition Year for Oil & Gas Exploration & Production

June 9, 2009

Oil & Gas Companies are Acquiring Properties & Companies opportunistically taking advantage of today's Low Commodity Prices which are expected to continue through 2009 into first half of 2010.   Upstream E&P Companies that were highly financially leveraged during the High Commodity Price Period have been most severely impacted by the precipitous decline of commodity prices and today's more capital constrained financial markets.  2009 is a Transition Year for Oil & Gas E&P as well funded Integrated Major Oil companies defer traditional organic Drilling for Reserves, as they wait for Service Company and Oilfield Suppliers prices to reconcile with anticipated $70-$90 per barrel oil prices, as they decline from recent highs associated with $130-$150 oil commodity prices.          

Michael LynchConsultantMichael E. Lynch

Oil and gas companies enjoy both lower costs and higher crude oil prices

June 9, 2009

The Rig zone Newsletter of June 5 reported that two cost indices released by the IHS Cambridge Energy Research Associates reversed a series of cost escalations. Upstream Capital Cost Index fell 8.5% over the last six months. The Operating Cost Index fell 8%. These are measures of cost changes that can be considered similar to the Consumer Price Index. The CERA indices are calculated against prices for the year 2000. Daniel Yergin, IHS CERA chairman noted that the first signs of falling costs were evident in November and December of 2008. Reduction of capital cost was driven by reduced activity. Reduction in operating costs resulted from a fall off in construction activity and lower levels of resource utilization. Transportation and consumables were lower priced. A sharp decline in steel and subsea equipment was seen. Lead times have decreased and costs of well servicing fell. While the number of projects declined, offshore operating costs remained higher because of sustained activity.