The costs of building and operating upstream oil and gas facilities—which dropped sharply during the first quarter of 2009 after a long stretch of escalation—bottomed out and were starting to show signs of an upward trend at the end of first-quarter 2010, according to IHS Cambridge Energy Research Associates (IHS CERA).

However, the blowout in the Gulf of Mexico will likely put downward pressure on costs, according to the firm.

The IHS CERA Upstream Capital Costs Index (UCCI), which tracks costs associated with the construction of new oil and gas facilities, remained relatively flat at an index score of 201, registering a decrease of 0.3% during the past six months. The UCCI’s counterpart, the IHS CERA Upstream Operating Costs Index (UOCI), which measures operating costs for those facilities, climbed 3% during the same period to an index score of 172. Both scores reflect costs from third-quarter 2009 to first-quarter 2010, before the oil-well blowout in the U.S. Gulf of Mexico.

“The ultimate impact of the oil spill and the subsequent moratorium on drilling by the Obama administration cannot be known at this time, but it has the potential to be a disruptive factor,” the firm said in a statement. “In the near term, the impacts will likely be seen in increased semisubmersible drill availability and discussion around re-utilization and possible force majeure. As the moratorium continues there will be a reduced demand for tubular goods, oilfield-service companies and even subsea equipment, putting downward pressure on costs.”

Daniel Yergin, IHS CERA chairman, says the latest upstream cost analyses showed costs poised to begin an ascent back to pre-recession levels after a precipitous fall last year. “However, the onset of the Gulf of Mexico oil spill adds a level of uncertainty to future forecasts, owing to the moratorium and liability limits, and as companies struggle to assess the full implications,” Yergin says.

The current UCCI shows how upstream capital costs bottomed out after falling 9% in 2009 and are now holding at early 2007 levels. “However, the flat trajectory hid volatile up and down movements in the underlying markets that comprise the index,” IHS CERA states.

According to the UCCI, upstream steel costs stabilized and then increased for the first time in 12 months as the result of higher raw material costs. Steel jumped 3% during the current index period after falling almost 40% the year before.

Meanwhile, yards and fabrication costs rose 4% after falling 13% during the previous six-month period. Increased orders for offshore platforms and upward movement in general offshore construction prompted the turnaround.

“We can expect to see more (cost) volatility in raw materials going forward as supply responds to increasing demand,” said Pritesh Patel, director for the IHS CERA Capital Costs Analysis Forum. “This will be passed through as manufacturers and contractors continue to balance backlogs against new orders coming in.”

The costs of labor and engineering and project management were eased somewhat by the strengthening of the U.S. dollar, but they still increased 3% and 2%, respectively, because of a shortage of skilled labor in the market.

Operating costs rose slightly after bottoming out during the previous six months. The index lifted by 2% because of an upswing in onshore service rates, increased material input prices and escalating manpower costs, IHS CERA says.

At the same time, personnel costs for operating companies also climbed, rising about 5% while demand for skilled production personnel held steady, especially for skilled managers and engineers. Consumables costs jumped 2%, driven by reduced downstream inventories and increased demand for petrochemical feedstock as the economic recovery continued.

“Both operators and service companies have shifted away from cutting the workforce to reduce overhead and have shifted back to a ‘train and sustain’ mindset, investing in developing and retaining highly skilled workers,” said Jeff Kelly, associate director for the IHS CERA Operating Cost Analysis Forum.

“The last 12 months have emphasized the importance of retaining knowledge and could have higher cost implications in the future.”

Both indices reflected increases for onshore rigs and decreases for offshore rigs. Capital costs for onshore rigs climbed 1.5% during the index period, continuing the market’s slow recovery. Conversely, offshore rig capital costs fell sharply, dropping a whopping 13% following a decreased demand for jack-up rigs.

Operating costs for well services grew 3% for onshore rigs, driven by higher utilization rates and increased prices for materials used to service wells. Operating costs for offshore wells continued to reflect a soft market for shallow water or shelf spending.

The two indices measure cost changes to provide a benchmark for comparing global upstream costs. Values are indexed to the year 2000, meaning that capital costs of $1 billion in 2000 would now be $2.01 billion. Similarly, the annual operating costs of a field would now be up from $100 million in 2000 to $172 million currently.