Business | Oil & Gas
Companies plan on higher crude prices
Oil firms are using higher price assumptions for planning their businesses, making a greater range of projects viable and a sign that the floor for prices in the long run is moving up.
- Reuters
- Published: 00:07 May 22, 2008
-
Opec supply could rise by 700,000 bpd this month
Opec supply could rise by 700,000 bpd this month
-
Oil at new record above $134
Oil surges near $134 on supply woes and weak dollar
London: Oil firms are using higher price assumptions for planning their businesses, making a greater range of projects viable and a sign that the floor for prices in the long run is moving up.
Companies such as BP and Royal Dutch Shell have been nudging up the prices they use for planning, although they remain lower than the current price, which hit a record above $130 a barrel yesterday.
"They are gradually starting to move up," said Peter Hitchens, oil analyst at Seymour Pierce in London.
"BP is using $60 - they have moved up the threshold. Shell must be using something higher because of higher costs coming in," he added. BP's chief executive Tony Hayward gave that figure in in a February 27 strategy address.
Just a few years ago companies assumed long-run prices around $25.
"Given the very conservative nature of price assumptions for planning, typically the increase would imply that the higher price environment will be reasonably sustained over the life cycle of the project considered," said Harry Tchilinguirian, oil analyst at BNP Paribas in London.
Costs are rising because of higher prices for materials and services, chiefly steel and rigs. A growing part of new supply is also expected be of more costly non-conventional oil, such as crude extracted from tar sands.
Italian oil firm ENI signed an accord with the Republic of Congo on Monday to tap oil from tar sands in the African nation.
Such ventures need a higher oil price to make money, analysts say, but represent a large source of new reserves open for foreign investment outside the volatile Middle East.
"The companies need to be factoring in quite high prices to make these kinds of projects work, certainly over $85," said Kevin Norrish, oil analyst at Barclays Capital.
Oil companies were slow to move their price assumptions higher as oil began to rally after a crash to $10 in 1998 that analysts say hindered investment in the early part of this decade.
"Over the last five years, the trend has been steadily upwards and it seems likely that prices will be supported at higher levels on the downside of the cycle than in the past," BP's Hayward has said.
Higher price assumptions help to make a greater range of projects viable for investment.
Shell is already spending billions of dollars on non-conventional oil. It is tapping crude from tar sands in Canada and building a plant in Qatar, Pearl, to turn natural gas into liquid fuels.
Share this article
Related Articles
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Shaikh Mohammad reaffirms UAE unity
Vice-President quashes talk of discord and reassures investors on the strength of Dubai's economy
-
Pizzazz on the palm: A Nikki Bisiker project
Bright, bold and ultra glam are the top notes of this apartment in The Palm Jumeirah's beautiful marina
-
flydubai starts service to Sudanese capital
Dubai's first low cost airline, celebrated its eighth inaugural flight in less than six months
