Australian offshore exploration drilling down, costs up

Australia is drilling two thirds fewer offshore exploration wells than in 2003, but the total costs of drilling those wells has increased fivefold.

Analysis of data released by the Australian Bureau of Statistics and the Australian Petroleum Production & Exploration Association (APPEA) has highlighted the need to address the global cost competitiveness of the country’s oil and gas industry.

While the costs of individual wells varies widely depending on a range of geographical, geological, and technical factors, the study indicates the average cost of drilling offshore wells is now more than $130 million (Aus.).

In 2003 there were 60 offshore wells drilled at a total cost of $500 million (Aus.). In 2013, 19 wells were drilled for a total cost of $2.5 billion (Aus.).

APPEA says this is evidence of significant cost pressure on Australia’s offshore exploration and production.

Stedman Ellis, APPEA’s western region chief operating officer, said these figures reflect a range of factors, including higher rig day-rates and the fact that drilling is shifting further offshore into deeper, more remote waters.

“The increase in drilling expenditure reflects broader cost pressures across the value chain from exploration to development and through to production. These are being exacerbated as the industry moves into more and more complex offshore areas. The low-hanging fruit has been picked,” he said.

“Australia is already at the top of the cost curve for bringing gas to market. Greenfield projects in this country can be almost double the cost of new LNG competitors in East Africa, North America, and other locations,” he said.

Ellis also took a swipe at the domestic gas reservation policy in Western Australia.

“Big industrial gas customers who benefit from gas reservation in Western Australia have been trying to argue that record investment in offshore exploration shows the policy is not a disincentive to producers,” he said.

“However these customers conveniently ignore the fact that while exploration expenditure has increased since the policy’s introduction, the number of wells drilled has steadily declined. Australia’s ability to develop new gas projects is already threatened by rising costs at home and growing competition abroad,” he said, adding, “APPEA believes long-term energy security is best delivered through effectively operating markets and by encouraging new entrants and competition. This is a view shared by governments other than Western Australia that have considered and rejected the need for reservation policies.”

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