CERA sees oil, gas construction costs bottoming
*Says confidence returning to oil/gas industry
* Says uncertainty still hinders many projects
NEW YORK, Dec 8 (Reuters) – Costs to build new oil and natural gas production facilities appear to be reaching a bottom after a sharp decline earlier this year, according to consultancy IHS Cambridge Enery Research Associates (IHS.N: Quote, Profile, Research).
CERA’s index on upstream capital costs, which measures costs to build the production sites, declined by 4 percent over the past six months but appeared to be bottoming, while the upstream operating costs index rose 1 percent over the past half year after an 8 percent decline the prior year.
Energy companies have sharply reduced spending on new oil and gas developments since the steep slide in energy prices from the peaks reached in July 2008.
Those spending cuts reversed the escalation in prices that construction and oilfield services companies pushed through in recent years and have forced companies such as Schlumberger Ltd (SLB.N: Quote, Profile, Research), Halliburton Co (HAL.N: Quote, Profile, Research) and Baker Hughes (BHI.N: Quote, Profile, Research) to reduce their prices.
But as prices for oil and gas have stabilized and the global economy recovers, costs for drilling and developing new wells appeared to be following, CERA said.
"The IHS CERA upstream cost analyses show that some confidence has returned to the industry as oil prices have recovered and expectations rise for a strong economic recovery in 2010," said Daniel Yergin, IHS CERA Chairman.
"However, uncertainty related to present low oil demand and large spare capacity continues to hinder many projects."
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