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API: Drilling Expenditures Hit Record $110B in 2006

Oil and natural gas industry spending on drilling and equipping wells hit a record high of nearly $110 billion in 2006, according to a new report issued by the American Petroleum Institute (API) last Wednesday. Industry drilling expenditures for natural gas outpaced those for crude oil for the 19th year in a row in 2006.

The report, the "2006 Joint Association Survey on Drilling Costs," found that industry spent 44% more in 2006 -- the most recent year for which data was available -- to drill and equip wells in the U.S. than it did in 2005. Total drilling expenditures were estimated at $109.8 billion in 2006, up from $76.2 billion for the previous year, the API said. It noted that increases in the number of wells and total footage drilled pushed the average cost per well and per foot to their highest levels ever.

In 2006 industry spent $14.7 billion on exploration wells compared to $12.4 billion in the previous year. Development well expenditures totaled $93.8 billion in 2006, up from $63.8 billion in 2005, the producer group said.

Spending on development natural gas wells shot up 72% to $53.7 billion in 2006, while spending on oil development wells climbed 58% to $33.6 billion during the same period, according to the API.

Although oil exploration was especially strong in 2006, the industry spent more drilling for natural gas for the 19th consecutive year, the group noted. In 2006 gas expenditures accounted for 54% of total drilling spending, up from 51% in 2005. Spending on oil drilling dropped to 34% of total expenditures from 35% in 2005, while dry holes accounted for the spending balance of 12%, the API said.

"This unprecedented level of spending clearly demonstrates the industry's commitment to actively invest in exploring for and finding new sources of crude oil and natural gas," said Hazem Arafa, director of API's statistics department.

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