Oil and gas well costs surge

Peter Klinger

As ExxonMobil and partners Santos and Oil Search yesterday celebrated the sailing of a maiden cargo from their $US19 billion ($20.6 billion) PNG LNG plant in the Pacific, Australia's peak oil and gas lobby has revealed a five-fold increase in the cost of locally drilled offshore wells.

Based on industry data, the average cost of a well spudded off Australia is more than $130 million.

The huge rise in well costs has coincided with a more than two-thirds fall in activity levels since 2003, according to an analysis by the Australian Petroleum Production & Exploration Association.

APPEA has used the analysis to warn about Australia's fast-diminishing competitiveness at a time when oil and gas majors are finding massive gas finds elsewhere in the world where construction and operating costs are much lower, including in PNG, east Africa and North America.

"Australia is already at the top of the cost curve for bringing gas to market," APPEA Western Region chief operating officer Stedman Ellis said.

"The low-hanging fruit has been picked. Greenfield projects in this country can be almost double the cost of new LNG competitors (elsewhere)."