NGI The Weekly Gas Market Report / NGI All News Access

Producer Spending on Drilling Sets Record of $226.4B in 2007

Spurred by strong demand and high commodity prices, oil and natural gas industry spending on drilling and equipping wells in the United States surged again in 2007, hitting an all-time high of $226.4 billion, more than double the previous record of $109.8 billion set in 2006, according to a joint survey of drilling costs cited by the American Petroleum Institute (API).

Spending on natural gas wells more than doubled to $119.1 billion in 2007 -- the most recent year for which data was available -- from $59.3 billion in 2006, while oil well expenditures rose 94% to $72.3 billion from $37.3 billion in 2006, the 2007 Joint Association Survey on Drilling Costs (JAS) reported. Overall the industry spent 106% more to drill and equip oil and gas wells in 2007 than the prior year.

For the 20th year in a row, producers spent more drilling for natural gas than oil in 2007, the survey said. Natural gas accounted for 53% of the total drilling expenditures in 2007, while oil accounted for 32% and dry holes made up the 15% balance.

The average cost per natural gas well was $3.9 million in 2007, up 105% from 2006's $1.9 million. Per foot, gas well expenditures averaged $604 in 2007, up from $348 in the prior year. For oil wells, average per-well spending increased 82% to $4 million in 2007, compared with $2.2 million in 2006, according to JAS.

"Strong demand and historically high prices spurred increased competition for limited material and labor, and combined with record-high costs for steel, pushed up drilling costs," said Hazem Arafa, director of API's statistics department.

"But despite a doubling of the costs to drilling and develop wells, we also witnessed a rise in both the number of wells drilled, which increased 4% from 2006, and the average depth of those wells, which increased 9%. This demonstrates the industry's commitment to developing our oil and natural gas resources."

If the U.S. gas drilling rig count continues to plummet, as has been the case for the past several weeks, spending to drill and equip wells is unlikely to hit a record this year (see related stories).

©Copyright 2009 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus