Costs for oil discovery equipment and labor have kept pace with rising oil prices over the years, and are expected to drive prices higher yet. Cambridge Energy Research Associates estimates that capital expenditures for exploration in the oil industry have gone up almost 80% since 2000. In comparison, the average price of West Texas Intermediate crude has doubled since 2000, according to Barclays Capital. A survey of 299 oil and gas companies conducted last year by Lehman Brothers found that the companies planned to increase their exploration and production spending 9% to $292 billion in 2007. Another study by Lehman Brothers reported that the oil industry’s discovery and development costs in 2006 averaged roughly $20.40 per barrel, a 400% increase from 2001. In some cases, exploration costs have caused oil firms to delay or cancel major projects. Recent oil projects are larger and in tougher environments than before, and plants that are operating at full capacity to meet demand are sometimes forced to shut down for unplanned maintenance.

Source: The Wall Street Journal