As oil prices increase, the cost to find it is up as well

As oil prices have spiked, the costs of finding oil and natural gas grew right along with them, an industry cost expert told oil executives and engineers at a conference Thursday.

But Cambridge Energy Research Associates expects such costs to soften in the next two years, said Candida Scott, director of cost research for CERA.
Scott joined experts with CERA’s parent company and conference sponsor, IHS Energy, to discuss exploration and production trends.

From 2000 to 2004, a key benchmark in the cost of doing business — rates oil companies pay to lease drilling rigs — rose slowly and consistently, Scott said.

Then a more dramatic increase in costs followed as rising worldwide energy demand and high commodity prices sparked more oil and gas drilling in tougher-to-reach areas, such as the deep-water Gulf of Mexico.

Tight supply and growing demand helped push oil prices to $77.03 in July last year, and the same fundamentals pushed them to a closing record of $78.21 on Tuesday. On Thursday, oil prices settled at $76.86 a barrel on the New York Mercantile Exchange.

In that environment, deep-water rigs can charge day rates of $500,000 or more because there aren’t enough.

In addition, costs have risen for raw materials, such as steel, and specialized equipment designed to operate on the seafloor. In 2006 alone, so-called finding costs rose more than 30 percent, according to CERA.

Houston Chronicle