Revenues for upstream oil and gas companies grew by a solid 19% in 2006, compared with the previous year, but "a relentless upward march of costs" significantly bit into net incomes during the same period, according to the "2007 Global Upstream Performance Review" by energy-analysis firm John S. Herold Inc. and M&A advisor Harrison, Lovegrove & Co. The report focuses on the global upstream investment performances of 228 energy companies. While the oil and gas industry posted a record $243 billion in upstream profits-nearly $13 per produced barrel of oil equivalent (BOE)-higher lifting costs ate up more than a third of that gain. "Gains in profitability and cash flow were all positive," the firms report, "but their respective percentage changes from 2005 to 2006 were much lower than historical averages as costs continued to increase." Specifically, lifting (or production) costs increased 31% on the year, while exploration expenses advanced 26%, and DD&A (depreciation, depletions and amortization) added 22% to the net drain. Likewise, government income-tax receipts surged 12%, ultimately consuming 50% of pre-tax profits. Still, demand for petroleum boomed worldwide due to continued global economic expansion, while constrained production and refining capacity squeezed delivery. This resulted in a 16% jump in the average price per BOE. Revenue from oil and gas production surged to $843 billion, a $133-billion increase from the year prior and more than double sales from 2003. For more on this, see the October issue of Oil and Gas Investor. For a subscription, call 713-260-6441.
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