Spiraling costs, usually associated with upstream “megaprojects” but these days impacting development projects of all sizes, are virtually the only subject in town at every event that I and others have attended this past month.

I touched upon this subject just a couple of months ago as an area of concern, but it has become higher profile even since that time.

It has certainly been more of a seller’s market in recent years, as oil prices recovered and activity surged to record levels. The service sector has, naturally, also tried to claw back some of the profitability it lost over the previous decade.

But it’s hard to be entirely sympathetic when the industry’s situation regarding the current state of its operating efficiency is largely self-induced. In this month’s management report, Ziff Energy points out that a benchmark study of deepwater facilities revealed that many production facilities are vastly underutilized, with oil and gas production rates 50% or more below the facilities’ design capacity. That is unforgivably bad planning in these days of integrated multidisciplinary project teams and life-of-field decisions supposedly made at the point of project sanction.

There are more examples. Paul Hillegeist, president at Quest Offshore, highlighted a specific aspect at the MCE Deepwater Development event in Madrid—the cost of topsides on floating production systems since the year 2000 has doubled.

There was a real-time poll of the several hundred delegates in the auditorium asking the question as to what would be the largest concerns for operators with deepwater developments. By far the largest single response (47.7%) was the increasing cost environment facing this industry.

Fellow speaker Luis Cabra Duenas, executive vice president for E&P at Repsol, warned, “There could be a reduction in capex over the next few years because we as an industry are returning back to a time of cost escalation. And we must think that excessive costs are a sign of inefficiency in our industry.”

It’s a vicious circle. Developing or enhancing new technologies via R&D programs costs money—often lots of money. Companies must weigh their options, therefore, and decide exactly how they define efficiency.

Costs must be controlled, but that doesn’t mean that money must not be spent. Rather, it must be spent as wisely as possible. Let’s hope the E&P industry strikes the right balance and ensures that the funding of new technologies, while not entirely avoiding tightening purse strings, at least receives the sustained support it needs.

If the cost efficiencies (as opposed to cost-cutting) dig too deep, it could turn out to be an expensive long-term mistake for us all.

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