EIA: Finding, lifting costs worldwide declined in 2009

By OGJ editors
HOUSTON, Mar. 4
-- Oil and natural gas finding and lifting costs declined in 2009 for a group of US-based producers, according to a recent report from the US Energy Information Administration.

EIA’s report, Performance Profiles of Major Energy Producers 2009, covers 30 oil and gas producers and refiners and finds that the companies’ collective net income declined to the lowest level since 2002. Also, the report finds that capital expenditures in 2009 fell sharply, but upstream capital outlays remained at historically high levels in spite of the decline.

Average worldwide finding costs for the sample of companies decreased by $5.79/boe to $18.31/boe of reserves added in 2007-09 compared with the 2006-08 period.

Finding, lifting costs
Finding costs declined in all regions except the former Soviet Union, Africa, and the Middle East during 2007-09. Finding costs climbed 32% to $13.92/boe in the FSU, while they increased by 6.7% in Africa to $35.01/boe. Finding costs climbed in the Middle East to $6.99/boe from $5.17/boe.

The US offshore, which had the highest finding costs in 2006-08, recorded the largest regional decline in 2007-09, dropping by $23.02/boe to $41.51/boe. Onshore US finding costs were $18.65/boe, down 24% from the previous period.

Finding costs in Europe, the region outside the US with the highest costs during 2006-08, also fell sharply in the most recent period to $42.32/boe, down almost 32%. Finding costs in Canada registered a 57% decline to $12.07/boe likely due in part to the inclusion of oil sands in the calculation in 2009, the report said.

Worldwide lifting costs for the sampled companies fell by $1.19/boe in 2009 to average $11.51/boe, reversing a nearly decade-long upward trend. Total lifting costs fell in each region except Canada, where they climbed $2.49/boe, again probably reflecting the inclusion of oil sands.

EIA said production taxes were the major contributor to the decline in total lifting costs, sliding 84¢/boe in 2009 and accounting for 70% of the decline, as such taxes typically rise and fall along with the prices of oil and gas. Both oil and gas prices fell in 2009.

Direct lifting costs fell 14% in the US but increased in every other region during 2007-09, when finding and lifting costs combined fell by almost $5/boe to $29.81/boe.

Cash flow, capital spending
Cash flow from operations decreased 41% to $131 billion in 2009 from a year earlier, led by a 66% decline in net income.

Meanwhile, capital expenditures for exploration, development, property acquisition, and production decreased 24% to $166 billion in 2009 but remained higher than every year prior to 2006, EIA said.

US refining and marketing capital spending declined but remained high in 2009 as capacity increased.

US refining and marketing capital expenditures among the surveyed companies decreased 16% from 2008 to $22 billion in 2009, while such expenditures outside the US increased by 2%. Despite the net income loss reported in US refining and marketing, capital expenditures in 2009 remained higher than all but 3 prior years in the survey, according to EIA.

Analyst’s take
The calculation that EIA uses is to convert natural gas to equivalent barrels of oil is 0.178 bbl/1 Mcf.

Deutsche Bank analyst Adam Sieminski commented in a research report that because natural gas reserve additions were strong in 2009, and natural gas finding costs were low relative to oil, he suspects that the 2009 worldwide finding cost figure of $18.31/boe is skewed to the downside.

“Drilling costs are rising again, and correcting for this and the natural gas skew, we would not be surprised to discover that oil finding cost are closer to $25/boe going into 2011-12 and that the current “cost driven” price range for oil is closer to $75-100/bbl,” Sieminski said.

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