Some energy investors celebrate crude at $100 a barrel because it means higher profits but the downside is it might push up costs at oilfields in North America as companies compete for staff and equipment. Inflation gauges around the world are creeping higher, partly fuelled by rising food and raw material prices.
-- Signs of labour tightness seen in oil sands
-- Higher prices not biting hard yet
-- So far, the rise in exploration costs has been tame, but analysts and companies are nervously eyeing the oil spike, wondering if there will be a return to 2008, when some giant infrastructure projects became too costly.
"I don't think we are there yet, where profits are being hurt and projects are being cancelled," Chuck Chakravarthy, director in the oil & gas sector at Deloitte Consulting LLP, said, adding service costs are creeping higher in North American basins such as the oily South Texas' Eagle Ford formation.
In Canada's oil sands, where inflation raged in 2007 and 2008, signs of a tighter labour market are starting to show as a host of projects move forward, Bruce March, the Chief Executive Officer of Imperial Oil Ltd told the CERAWeek conference.
"We're starting to see a little bit of that activity come back as most of the oil sands developers are starting to reintroduce some smaller in situ projects," March said. Even so, March said the industry is improving the way it manages the labour situation, having learned a hard lesson several years ago.
"There's nothing like a difficult experience to change your leadership and your management approach going forward," March said.
There has been a widening gap between US crude oil and natural gas prices as massive supplies depress prices for the cleaner-burning fuel. That disparity has companies speeding efforts to drill for oil and liquids rich natural gas in shale formations such as the Bakken Shale in North Dakota.
The increased competition for the equipment needed to drill in shale have been followed by higher prices.
"From a cost standpoint we are seeing tighter markets for some of the services," said Andrew Coleman, a Houston-based analyst at Madison Williams, who follows exploration and production companies. "Remember that 70 percent of your well cost is hydraulic fracturing."
By contrast, service costs in areas where companies are drilling for dry gas are not rising.
"There is bifurcation in the way things are being priced," Deloitte's Chakravarthy said. The rig count is going down for dry gas and going up for in the oil shale. We are starting to see some effects on the oil side."
Still, others say companies will take steps such as using new technology to keep output rising in an inflationary environment. For example service companies are inventing ways to lower costs by making hydraulic fracturing more efficient, analysts said.
"The oil industry is like the dinosaurs in Jurassic Park," Coleman said. "It always learns how to survive.