The rising cost of exploring and developing oil and gas resources was demonstrated once again last week, with reports that the cost to build two liquefied natural gas (LNG) projects will be even higher than expected.

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Liquefied Natural Gas
Chevron Corporation
(NYSE:CVX) is developing several offshore natural gas fields and building the Gorgon LNG plant in Australia. The cost of this project was originally estimated at $37 billion and several media outlets have reported that Chevron believes the project may cost an additional $21 billion to construct. The additional costs are due to lower productivity, a strong Australian dollar, increased demands from labor unions and the rising costs of local manufacturing. Gorgon LNG is approximately 50% complete and is expected to start up in 2014. It will have annual capacity of 15 million tons.

Exxon Mobil (NYSE:XOM) is building a LNG project in Papua New Guinea as a means to develop the considerable natural gas resources located there. The project will now cost $19 billion to build, approximately 20% more than previous estimates. Exxon Mobil attributed the increase to exchange rate movements, poor weather and disputes with landowners.

The LNG facility in Papua New Guinea is about 70% complete and is expected to start up in 2014. Although the cost is higher than originally planned, Exxon Mobil said the additional cost would be offset by higher LNG prices and more capacity at the plant.

SEE: Oil And Gas Industry Primer

Divestitures
Hess Corporation
(NYSE:HES) has decided to divest the company's oil and gas assets in Russia, as it looks to focus on the United States onshore and other parts of its global portfolio. The Russian properties currently produce approximately 50,000 barrels of oil equivalent per day from several onshore areas. Hess has announced the disposition of two other properties over the last few months, raising approximately $1.5 billion in proceeds.

Exxon Mobil is negotiating to end its involvement with the first phase of the redevelopment of the West Qurna field in Iraq. The company was awarded the concession on this field along with Royal Dutch Shell (NYSE:RDS-A, RDS-B) in 2009.

Exxon Mobil is also involved with oil and gas exploration and development in Kurdistan, a semi-autonomous region in northern Iraq. The company's efforts here are generating conflict with Iraq's central government, which views agreements signed with Kurdistan as illegal.

Hi-Crush Partners LP (NYSE:HCLP) was one of the final companies in the energy sector to report earnings last week for the third quarter of 2012 While the company was profitable during the quarter, it also reported the termination of a major contract with Baker Hughes (NYSE:BHI) to supply sand used in hydraulic fracturing. The loss of the contract led to a 30% decline in the stock price for Hi-Crush Partners LP.

SEE: A Guide To Investing In Oil Markets

The Bottom Line
Some things never change and the rising costs needed to explore and develop for oil and gas seems to be one of these. This was confirmed last week with commentary from two of the world's largest integrated oil operators.

At the time of writing, Eric Fox did not own any shares in any company mentioned in this article.

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