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Deepwater project cost index compared to oil price.
Source: IHS CERA
DW cost index
DEEPWATER MARKET REVIEW
the “new normal” price. A 3% inflation rate
is a good long-term representative value. In
the last 100 years, the average stock market
price index has moved at a 3% average inflation equal to 19. 21 times ( 1.03^100) from
about $900 to about $17,300.
Even though the current price ($44/bbl
at press time) is low, it must be realized
that this is a sustained average lower bound
price. It is unlikely that an average price in
any year will decrease further as the pressure of economic fundamentals (supply and
demand) will ensure that. If anything, yearly
average prices are likely to be higher for
various reasons as described above. Thus,
there is a good confidence in the $44/bbl
minimum average price.
Between the 2004 and 2013 total upstream
spending has increased steadily at about 13%
per year, and the operating/production or
lift cost has also increased at about 10% per
year, except for the global financial collapse
in 2008/2009. These rates are unreasonably
high. Even the 2008/2009 figure is higher
compared to the yearly 3% inflationary increase. This was possible because of continued rise in oil prices.
It is interesting to note that, around the
year 1996/1997, Shell’s Auger and other con-
temporary fields in around 1,000-m ( 3,280-ft)
water depths in the Gulf of Mexico (GoM)
were profitable at about $20/bbl. When BP’s
Atlantis and Chevron’s Blind Faith were sanc-
tioned in 2005, the price was about $25/bbl. In
fact, oil companies were making more profit at
lower oil prices in the near past than recently
at higher oil prices. Based on this data, the in-