04 December 2007

Everyone's gettin' squeezed

Oil, gas explorers feeling pressure of new price floor

Oil and gas explorers around the world need US$70 a barrel oil on a sustained basis to make the returns they were making only a couple of years ago with oil prices at $30, according to a study by international energy research firm Wood Mackenzie. Rising costs for equipment, lack of access to many basins and more challenging plays have elevated prices needed to earn a return of 15% on exploration, Andrew Latham, vp of exploration service, said from Edinburgh, where the firm is based.

"Things have changed quite quickly," he said. "What we are seeing is the equivalent of a new price floor for explorers, and the US$30 that worked two or three years ago certainly doesn't work anymore." The higher floor price is contributing to the higher price of oil, he said. The study, based on an analysis of conventional exploration in 400 basins around the world, found the cost of drilling alone has risen by 60% since 2004.

Latham said the basins hit hardest are those in deep waters, such as the Gulf of Mexico, offshore West Africa and Brazil, where there is a shortage of all types of equipment, from drilling rigs to floating production facilities.
(National Post 071128)

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