Release: IPA: Cost pressures in the upstream oil and gas industry
Tuesday, March 28 2006 - 04:52 AM WIB
The IPA, represented by Yudiana Ardiwinata, special advisor to the Board of Directors, noted the following points in the IPA press briefing.
Strong global growth particularly from China has increased demand for commodities and this has pushed up prices for oil, coal, LNG and metals such as steel. The latter is a key input to industry construction costs.
High global oil and gas prices have stimulated investment and demand for equipment, services and people. With industry capacity constraints in all areas and demand exceeding supply, prices for drilling rigs, seismic vessels and fabrication have all increased dramatically.
Offshore drilling rig rates have increased over 300 percent in two years, for example, and fabrication costs have increased over 100 percent in similar time period.
These global costs pressures are driving up costs in the Indonesian oil and gas sector exacerbated by rising fuel costs, rising inflation and maturing fields which are increasingly more expensive to operate as water cuts, for example, increase.
Falling oil and gas production together with a high percentage of fixed costs, which as noted above are all increasing, all lead to rising per barrel of oil equivalent (BOE) operating costs and costs recovery.
The industry remains bottom-line focused on every dollar whether it be capital investment or operating expenditure is contested in corporate investment process and closely controlled by BPMIGAS and other Government agencies. Further, the Indonesian procurement system together with the various audit process ensures the operators implement projects and operations ion the most cost effective manner. (end of release)