As if the spiraling decline in natural gas spot prices was not enough to give producers pause, natural gas and oil field operating costs are now on the rise, according to Ziff Energy Group’s 2001 study of 200 oil and gas fields in Western Canada.

“A year ago we recommended to all our clients in Canada and the United States to commence programs to manage their energy more efficiently,” commented CEO Paul Ziff. “Those who did were prepared, while many others suffered the full impact of high costs. While some energy costs have backed off in 2001, we expect continued volatility in the next several years, and alert knowledgeable managers will be able to outperform industry averages.”

The study revealed that for gas the average operating cost increased by 39% to $0.58/Mcfe in 2000 from $0.42/Mcfe in 1999. Likewise, the average oil operating cost jumped 30% to $6.10/boe in 2000 from $4.70/boe in 1999. Energy costs for electricity and natural gas increased by 33% for gas and 27% for oil.

Ziff Energy’s study also showed that energy costs impacted many other services. The research group found that many producers that were faced with repairs and maintenance backlogs took advantage of the increased cash flow in 2000 to catch up and even get ahead. The company said that an increase in activity as well as a “buoyant drilling program” forced the cost of many drilling-related services up as well. The total cost of repairs increased by 20% for gas and 35% for oil. Other operating costs, which include field overheads, contract services and trucking, rose by 28% for gas and 47% for oil. The study pointed out that labor and field supervision remained the most stable costs, rising from 6-18%.

“The year ahead will present more challenge for producers seeking to maximize cash flow (in some cases to avoid being taken over). Gas prices have plummeted from levels that were too high for certain markets, and oil prices are softening in the face of a significant economic slowdown past September 11. Reducing operating costs is the quickest lever for producers, and some proactive companies are reviewing the operating cost of every property they operate.”

Ziff Energy said that its Western Canada study is now presented in the same format as all the other basins in the Americas and internationally. The company said it currently has operating cost data on nearly 2,500 oil and gas properties, operated onshore and offshore by over 100 companies in the Americas and Asia.

“From this database, which is the largest in the world, we are now able to cross compare properties throughout the world on a consistent basis, which allows managers to learn many new lessons which previously were not apparent,” said Adrian Goodisman, Ziff Energy’s E&P Services head. “A producer in Alberta may be facing the same problems as a producer in Texas or Venezuela, and we can now see the commonalities as well as the differences. Energy management is becoming increasingly of interest to producers everywhere.”

For more information on the study, visit www.ziffenergy.com.

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