IHS CERA indexes show upstream cost hikes

Upstream capital and operating costs rose in the 6 months ending in the third quarter of 2010, according to indexes compiled by IHS CERA.

By OGJ editors
HOUSTON, Dec. 9
-- Upstream capital and operating costs rose in the 6 months ending in the third quarter of 2010, according to indexes compiled by IHS CERA.

The IHS CERA Upstream Capital Cost Index rose 3% to 207 between the first and third quarters of the year on a scale in which costs of the year 2000 are assigned the value 100. The index had fallen since 2008.

The IHS CERA Upstream Operating Cost Index, against as similar scale, rose 1% to an index score of 173.

The firm said the index shows the federal moratorium on offshore drilling imposed after the Macondo blowout in the Gulf of Mexico in April “had a significant impact in the gulf.”

A press release noted six departures of deepwater rigs from the gulf and a sharp reduction in the number of new wells drilled in shallow water.

“The subsequent lifting of the moratorium does not mean a return to business as usual, however,” it said. “The return to drilling will be slow as operators and rig owners move to meet newly enacted certification processes.”

Although deepwater activity elsewhere hasn’t shown a similar decline, said IHS CERA Chairman Daniel Yergin, “increased certification regulations will likely push up total project costs globally in the future.”

The capital cost index assessment included increases in 6 of the 10 markets it tracks. But only steel had an increase above 2%. Its increase was 7%.

The increase in the operating cost index “was driven by higher onshore well service (2% increase) and material costs (3% increase), though both remain below 2008 levels,” IHS CERA said. Other markets tracked in the calculation were mostly unchanged.

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