Costs hit oil firms' income

14 September 2008
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15 September 2008

Oil company revenue growth has been hit by inflated production and service costs, which weakened the profits they could make from high crude prices.

A study of 232 major oil companies, by research firm IHS Herold and corporate finance company Harrison Lovegrove, found their profitability slowed in 2007 as a result of rising costs.

Last year the companies' combined production revenue reached $931 billion (£529.7 billion). This was an increase of $86 billion (£50 billion) compared with 2006, but represented the smallest rise since 2003. Extraction and production costs, including taxation, climbed 17 per cent compared with the year before, while oilfield service costs have also risen by around half over the past two years.

The average price for a barrel of oil paid to producers last year was $47.5 (£27), a 9 per cent increase on 2006. The study said demand for oil was high and large earnings at the beginning of 2008 were the result of strong commodity prices. It argued growth in production was "microscopic at best".

It added the year so far had been one of the most "dynamic and turbulent" for the industry and the world has experienced oil price rises and volatility unlike any in "recent memory".

"Many of the trends this year - the oil price run up [increase] and volatility, limitations on access to resources, cost inflation across all components of the business and the difficulty the industry has faced in replacing its reserves - have been building for some time."

SMsep2008

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