Upstream costs climb

High demand for goods and services helped push up building and operating costs for upstream oil & gas facilities over the six-month period covering 3Q 2011 to 1Q 2012, according to two IHS cost indexes. The IHS Upstream Capital Cost index rose 2.3% over the period to an index score of 227, 1% below the 3Q 2008 high of 230 while the Upstream Operating Cost Index rose 2.1% to reach a new high score of 189. The scores are indexed to the year 2000, which means that capital costs of $1 billion in 2000 would now be $2.27 billion and annual operating costs of $100 million in 2000 would now be $189 million.

IHS attributed the increase in capital costs largely to higher day rates for deepwater rigs, driven by strong demand and rising fuel and labor costs, as well as competition for goods and services from the onshore US unconventionals boom. Operating costs climbed due to increases among all four markets the index tracks: operations, maintenance, logistics and well services. The skilled labor shortage in particular helped drive up operating costs, said IHS associate director David Vaucher.

Without a doubt, labor is the top concern currently for oil and gas field operations, Vaucher said. Building an extra piece of equipment can be done by negotiating with vendors, re-organizing manufacturing schedules or re-diverting existing resources.

Training and retaining a competent worker, however, can take months, sometimes years depending on the position, he added. OE

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