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.

Discount Brokers Comparison: Your one-stop shop for finding the perfect broker for your investments.

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.

Related Articles
  1. Stock Analysis

    The Top 5 Platinum Penny Stocks for 2016 (PLG, XPL)

    Examine five penny stocks in the platinum mining business that investors may wish to consider adding to their investment portfolios for 2016.
  2. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  5. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  6. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Economics

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
  9. Stock Analysis

    The Top 5 Silver Penny Stocks for 2016 (LODE,AG)

    Learn about five of the top silver penny stocks and why investors may want to consider adding them to their investment portfolios in 2016.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center