Rising costs threaten new gas projects: APPEA

Fewer offshore oil and gas wells are being drilled and their total cost has increased five-fold during the past decade, a new report has found.

The Australian Petroleum Production and Exploration Association released a study today showing individual well costs vary widely based on location and technical factors, but the average cost of drilling an offshore well is now more than $130 million.

In 2003, about 60 wells were drilled at a total cost of more than $500 million.

This is compared with fewer than 20 wells drilled in 2013 at a total cost of almost $2.5 billion.

APPEA western region chief operating officer Stedman Ellis said Australia’s ability to develop new oil and gas projects was already threatened by greater global competition and high costs.

Mr Ellis used the study results to reinforce APPEA’s call to scrap Western Australia’s domestic gas reservation policy, saying it discouraged investment in new domestic gas projects.

“Big industrial gas customers who benefit from gas reservation in WA have been trying to argue that record investment in offshore exploration shows the policy is not a disincentive to producers,” he said.

“But they conveniently ignore the fact that while exploration has increased since the policy’s introduction, the number of wells drilled has steadily declined.”

Mr Ellis said costs for offshore exploration had risen due to higher daily rig rates and rigs operating in deeper, more remote and more difficult waters.

“The increase in drilling expenditure reflects broader cost pressures across the value chain from exploration to development and through to production. These are being exacerbated as the industry moves into more complex offshore areas.”