Rising Capital Costs Bear Down on E&P Profitability

Higher oil and gas prices have encouraged a wave of new investments for discovering and developing resources. However, the soaring costs of exploration and production (E&P) programs and the volatility of energy prices have left many producers uneasy about future profit margins. CERA has undertaken new research to quantify how capital costs are affecting project economics in today's markets.

* E&P capital costs are accelerating and have increased approximately 42 percent from 2000 to 2005 (third quarter) compared with a 15 percent rise in the Consumer Price Index.
* Increasing costs and energy price volatility are having an impact on investments. Oil and gas projects that were profitable at $22 per barrel in 2002 now require $35 per barrel to achieve similar returns.
* A macro view of costs using a capital cost index can serve as a useful tool to manage risk and provide an industry benchmark for tracking portfolio performance and structuring contracts.

CERA Research Reports

Browse other CERA research reports:

Oil Reports
Power Reports
Gas Reports
Energy Technology Reports

About CERA

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.