THE cost of developing the Cliff Head oil project north of Perth has jumped by 50 per cent over the past nine months, illustrating the dramatic impact of the State’s investment boom.
There has been plenty of anecdotal evidence of a sharp jump in project costs in WA but Cliff Head provides hard numbers to back up the talk.
Project operator Roc Oil estimated last April that the cost of developing Cliff Head, located offshore from Dongara, would be $156 million.
Since then it has twice announced sharp increases in development costs, most recently last week when it revealed a further 25 per cent jump following receipt of tenders for the various contracts.
Roc said the sharp rise in oil prices had largely offset the impact of higher costs and meant the project remained commercially viable. The increase in project costs has been driven by the shortage of skilled labour and capital equipment.
Roc, which appointed Worley as its engineering contractor in 2003, said costs had risen in the upstream fabrication and construction sector.
Engineering contractors are now in a strong bargaining position, in many cases moving from fixed-price contracts to ‘reimbursable’ contracts, where the client has to meet cost increases during the development phase.