Total and Qatar warn oil contractors on high costs

French oil major Total and Qatar's energy minister on Thursday both warned service contractors they risked damaging the energy industry unless they moderated their fees.
Total Chief Executive Christophe de Margerie told an industry conference the level of price increases for hiring drilling rigs and building gas production facilities was unjustified, even allowing for tightness in the supply of the contractors' inputs.
"A nice message to our dear contractors: We all know that you are facing difficult times ... but we are also under strong constraints, especially because of the price of oil," the CEO said. "Just be careful. We just cannot continue with a more than 30 percent (cost) increase per year. It is not justified...and it's becoming close to the level of (the) cost of projects, which might push, not companies, but states to delay projects."
De Margerie said this could lead to a fall in global oil production at a time when more investment is needed to replace depleting reserves and to meet global demand. This would in turn hurt the energy industry as a whole, including energy services groups, he said. His comments were echoed by Qatari Energy Minister Abdullah bin Hamad al-Attiyah.
"We can't believe the way the costs have inflated ... we've been forced to halt some projects," he told the same conference. "I met some contractors... I told them, 'don't kill the goose'," Attiyah added. Surging oil prices have prompted energy companies world-wide to boost exploration, creating a bottleneck for the services companies that work for them and an opportunity to drive up prices.
The oil service companies deny that they are profiteering, arguing that rising costs of steel and labour and difficulties in securing new equipment are behind the price jumps. Attiyah said he was not convinced. "I cannot trust contractors any more. They are high cost and low quality," he said.
De Margerie added high oil field service costs could help push up oil prices. "The oil price is not anymore a question of offer and demand, is also a question of costs," de Margerie said.