GLOBAL DATA

Record high oil & gas project costs expected for 2007

The costs of major oil and gas production projects have risen more than 53% in the past two years, and no significant slowing is in sight, according to a new benchmark index developed by IHS and Cambridge Energy Research Associates (CERA).

The IHS/CERA Upstream Capital Costs Index (UCCI), which tracks nine key cost areas for offshore and land-based projects, climbed 13% to 167 during the six months ending Oct. 31, 2006, compared with an increase of more than 17% in the previous six months. Since 2000, the UCCI has risen 67%, with most of the increase in the last two years, while the Producer Price Index-Commodities for finished goods (excluding food and energy) moved up just 7.5% during the same period.

Deepwater projects have experienced the largest cost increases, according to UCCI data, rising 15% in the recent six-month period, primarily due to drilling rig rates, technology limits and skill requirements, and are expected to continue to rise due to tight industry capacity.

“This continuing cost surge is central to every energy company’s strategic planning and to every energy user’s expectations for supply security in the coming years,” said Daniel Yergin, CERA Chairman.
-Excerpt from CERAWeek in Houston