US industry expects higher costs following Macondo

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Mar. 1 -- US oil and gas executives are concerned that changing regulations could boost drilling costs, making some exploration projects uneconomical, Grant Thornton LLP said.

More than 100 executives from independent producers and service companies listed regulations, oil and gas prices, and investment as top issues affecting their 2011 upstream outlook.

Survey participants identified uncertain natural gas and crude oil prices as their top concern for the third consecutive year. The 2011 outlook was Grant Thornton’s ninth annual survey of upstream US energy companies.

Results indicated 68% of survey participants believe an increase in drilling costs of 20% or more due to changes in government regulations could make new exploration and development projects uneconomic.

“Offshore operators and contractors continue to seek certainty in attempting to plan for the future while bracing themselves for the new regulatory requirements that will eventually be enacted,” Loretta Cross, Grant Thornton partner and director of corporate advisory and restructuring, told OGJ.

US regulations are expected to change following the Apr. 20, 2010, blowout of the deepwater Macondo well in the Gulf of Mexico. The blowout caused an explosion and fire on Transocean Ltd.’s Deepwater Horizon semisubmersible, killing 11 crew members and resulting in a massive oil spill.

Concerns about drilling safety “virtually paralyzed energy operations in the gulf,” Cross said. Meanwhile, recent world political events have renewed concerns about energy dependence.

“With the unrest in the Middle East, it’s clear that we are going to have to define our energy policies and strategy to become less dependent on foreign oil,” Cross said.

Industry resilient
Cross noted the upstream industry experienced a massive influx of capital during 2010, and she believes this will increase industry’s ability to pursue growth opportunities during 2011.

When asked about their spending outlook, 71% anticipate increases in US spending during 2011 over 2010. Only 12% said they plan to increase spending outside the US.

Of those surveyed, 61% expect higher employment levels at their companies in 2011. That compares with 50% in 2010 and 35% in 2009.

Some 90% of respondents said they believe employment levels across the US oil and gas upstream industry will increase or hold steady during 2011.

The survey was conducted via mail and the internet from November 2010 through January 2011.

Contact Paula Dittrick at paulad@ogjonline.com.



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