IHS CERA sees upturn in upstream costs

By OGJ editors
HOUSTON, June 22 – The global costs of building and operating upstream oil and gas facilities showed signs of an upturn in the first quarter of 2010 following last year’s slump, according to IHS Cambridge Energy Research Associates (IHS CERA).

The IHS CERA Upstream Capital Cost Index slipped 0.3% during the 6 months ending at the end of the first quarter of 2010, while the firm’s Upstream Operating Costs Index rose 3%.

The firm said costs were pushing upward toward the end of the first quarter, before the oil spill in the Gulf of Mexico.

IHS CERA assigns costs in 2000 an index value of 100 and measures changes against that base. Index scores for the latest 6-month period are 201 for capital costs and 172 for operating costs.

Daniel Yergin, IHS CERA chairman, said the new indexes “showed costs poised to begin an ascent back to prerecession levels after a precipitous fall last year.”

But he said the oil spill in the Gulf of Mexico “adds a level of uncertainty to future forecasts owing to the moratorium and liability limits and as companies struggle to assess the full implications.”

Upstream capital costs bottomed after falling 9% in 2009, with overall costs at early-2007 levels, according to the index. Although the index was level, volatility was evident in cost components such as raw materials, yard-and-fabrication costs, and labor and engineering.

The slight rise in the operating-cost index was from a low level to which it had sunk in the previous study period. It rose largely on the strength of an upswing in onshore service rates, increased material input prices, and rising manpower costs.