Oil companies to reap handsome profits

As crude oil price surges, the oil and gas (O&G) industry is also seeing some increase in operating costs but analysts expect the sector to remain profitable.

The average extraction cost of crude oil has risen as much as 50% to about US$15 per barrel compared with US$10 two or three years ago.
However, with crude oil prices at US$82 a barrel in New York trading yesterday, the O&G sector would still remain profitable, said an analyst with a local brokerage.

The extraction cost, including charter rates and rental of drilling equipment, varies from as much as US$26.25 a barrel in Scandinavia to as low as US$4 in North Africa.

Kenanga Investment Bank analyst Yin Shao Yang felt that the main concern of the industry globally was the shortage of equipment, offshore support vessels and skilled staff rather than rising costs.

TA Securities head of research and O&G sector specialist Kaladher Govindan concurred, saying that while costs had been rising for some time, the industry globally was expected to remain strong.

“The global oil majors, such as Shell, BP and Exxon-Mobil, remain highly profitable,” he said.

China’s PetroChina Co, Russia’s RAO Rosneft and Saudi Arabia’s Saudi Aramco were also considered sector majors and highly profitable, he said, adding that Saudi Aramco was the world’s largest state-owned oil company.

Kaladher said that apart from shortages in equipment, vessels and skilled workers, a new worry for the industry was rising steel prices.

Kenanga’s Yin pointed out that the rental for “jack-up rigs” used for drilling wells had jumped to an average of US$210,000 a day compared with US$70,000 about two years ago.

The Star