PETALING JAYA: As crude oil price surges, the oil and gas (O&G) industry is also seeing some increase in operating costs but analysts expect the sector to remain profitable.

The average extraction cost of crude oil has risen as much as 50% to about US$15 per barrel compared with US$10 two or three years ago.

However, with crude oil prices at US$82 a barrel in New York trading yesterday, the O&G sector would still remain profitable, said an analyst with a local brokerage.

Talisman Energy Inc, in its guidance to investors, put the company's oil extraction cost at an average of US$11 to US$12.

The extraction cost, including charter rates and rental of drilling equipment, varies from as much as US$26.25 a barrel in Scandinavia to as low as US$4 in North Africa.

Kenanga Investment Bank analyst Yin Shao Yang felt that the main concern of the industry globally was the shortage of equipment, offshore support vessels and skilled staff rather than rising costs.

TA Securities head of research and O&G sector specialist Kaladher Govindan concurred, saying that while costs had been rising for some time, the industry globally was expected to remain strong.

“The global oil majors, such as Shell, BP and Exxon-Mobil, remain highly profitable,” he said.

China's PetroChina Co, Russia's RAO Rosneft and Saudi Arabia's Saudi Aramco were also considered sector majors and highly profitable, he said, adding that Saudi Aramco was the world's largest state-owned oil company.

Bloomberg reported on Sept 4 that Saudi Arabia, the largest producer in the Organisation of Petroleum Exporting Countries, produced an average 8.68 million barrels a day in July.

In contrast, Malaysia's production figures were an average of 747,000 barrels a day, calculated for the year 2006.

UBS head of Asian oil and gas research Thomas Wong said that operating costs for oil and gas explorers have gone up quite a fair bit, citing windfall oil taxes and tight supply of drilling facilities.

“Profit margin was slightly higher last year compared with 2005 but it may be lower this year due to higher operating costs,” he said, but added that the sector still enjoyed fat profit margins given the high market price of crude oil.

Kaladher said that apart from shortages in equipment, vessels and skilled workers, a new worry for the industry was rising steel prices.

Kenanga's Yin pointed out that the rental for “jack-up rigs” used for drilling wells had jumped to an average of US$210,000 a day compared with US$70,000 about two years ago.

However, the high rental rates would only affect “wildcat” well drillers that did not conduct surveys before drilling.

He said the O&G exploration teams that did seismic surveying first would usually strike oil after a few days and would be able to recover the cost.

It was difficult to point out which oil companies did “wildcat” wells as there could be different divisions doing both types of drilling within the same company, he said.

For the financial year ended Dec 31, 2006 (FY06), PetroChina posted a 6.65% growth in net profit to 142.2bil yuan on revenue of 689 billion yuan.

In FY05, PetroChina registered a 28.43% growth in net profit to 133.36 billion yuan on revenue of 552.2 billion yuan.

Meanwhile, Russia's RAO Rosneft reported a 15.05% decline in net profit to US$3.53bil on revenue of US$33.1bil in FY06.

For FY05, Rosneft posted a 396.7% growth in net profit to US$4.16bil on revenue of US$23.95bil.

Royal Dutch Shell plc posted a net profit growth of 0.5% to US$25.4bil on revenue of US$17.9bil in FY06.

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