Another Decade of Rising Upstream Costs?

The cost to find, develop, and produce oil has been rising since 1995. Costs-as distinct from the market price of oil-are a crucial driver of investment decisions for exploration and production companies and affect as well a broader array of industry participants. CERA's look at the relative cost-competitiveness of the world's major oil-producing regions and where costs might go in the longer term shows

* Global average finding, development, and production costs for 2005 are $9.13 per barrel of oil equivalent (boe), 35 percent higher than in 2002. The marginal, highest-cost region is near $25 per boe compared with $14.50 in 2002.
* A long cycle of gradually tightening industry service capacity supported modest cost increases; and strong demand for oil and oilfield services has amplified this increase recently.
* Notwithstanding these trends, upstream costs in real terms are still below cost levels of the late 1970s and early 1980s. In the long term, global upstream costs will be affected by the tug-of-war between cost-reducing technical change and cost-increasing effects of depletion.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.