Cliff Head oil project hit by $25m cost blowout

The Cliff Head oil field development off Dongara has suffered a $25 million cost blowout amid increased rates for materials and services in the sector, project operator Roc Oil Ltd has revealed.

The blowout is the third increase to the bottom line for the project's joint venture partners, which early last year were forced to admit that what was a $156 million project in 2004 had become a $227 million project.

Then, late last year, an extra $12.5 million was also tacked onto the price tag to expand the scope of the project, taking the cost to $240 million.

The latest budget increase, however, takes the total capital cost for developing the field to $265 million.

Roc chief executive John Doran told the market that first production remained on track for this quarter, but weather, operational and equipment delays, mechanical revisions and rising industry costs of materials and services have resulted in the cost increase.

"We hate cost overruns. We derive no comfort from the fact that they are becoming the norm in many parts of the resource sector.

"It's all very well talking in the abstract about the rising cost of goods and services but it hits home when you realise that, for all practical purposes, the increased Cliff Head budget will on a post-tax basis - reduce Roc's net present value by about $3.8 million, equivalent to two cents per share," he said.

The Cliff Head field is considered the first major offshore development for the Perth Basin.

The owners have a sales contract in place with BP under which all of the crude oil production for the life of the field will be sold into BP's Kwinana Refinery.

Joint venture interests in the field are held by Roc Oil (WA) Pty Ltd (37.5 per cent), AWE Oil (WA) Pty Ltd (27.5 per cent), Wandoo Petroleum Pty Ltd (24 per cent), Arc Energy (PB) Ltd (six per cent) and CIECO Exploration and Production (Australia) Pty Ltd (five per cent).