Two senior oil major executives have sounded the alarm over how much deepwater field development costs have soared in the past few years, prompting one of them to write off “hundreds of millions of barrels of oil”.
“The biggest challenge in deepwater today is cost, and the cost challenge is not getting any better,” said Dr. Kevin Kennelly, vice president of facilities technology for BP. Due to rising development costs, he said his company had had to directly abandon projects as a result: “We could not demonstrate the commercial viability hurdle for hundreds of millions of barrels of oil.”
Dr. Kennelly was speaking at the MCE DD conference in Madrid, and his sentiment was borne out by Luis Cabra Duenas, executive vice president for E&P at Repsol. “The problem is when we believe that the oil and gas business is a good business to be in under any circumstances,” he said. Referring to recent industry cuts in capex, he said, “We have to think about excessive costs: international oil companies and corporations are not managing well the balance of services that we need to do our work.”
He referred to cost challenges for sourcing people, technology and methodologies. “We need good and talented people. And retaining them is going to be a huge challenge.”
On the sidelines of the conference he added that, between 2004 and 2008, industry development costs have “more than doubled.” He went on, “Now since last year we are seeing again growing costs due to a number of reasons.”
Duenas said higher prices were being reflected in the cost of drilling rigs, BOPs and wellheads. “Everything is going above what is considered to be the inflation rate.”
His comments were backed up at MCE DD by Paul Hillegeist, president at event organisers Quest Offshore. He flagged up that the cost of topsides on floating production systems has doubled since the year 2000.
There was also a real-time poll taken 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.
Their comments were backed up by others at the recent IHS CERAWeek summit in Houston. “US $100 a barrel is becoming the new $20 a barrel,” said Chevron’s CEO John Watson at the summit, while Total’s CEO, Christophe de Margerie, said, “We cannot continue to swallow this huge inflation.”
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