Singapore (Platts)--16Oct2009/545 am EDT/945 GMT

International oil and gas contractors are seeing a gradual recovery in their business as oil prices have stabilized and equipment costs have come off, industry sources said this week.

Upstream oil and gas development activity is picking up after oil prices have stabilized around $60-70/barrel, having fallen sharply from the $140/b levels seen last year, they said.

Though the high price was good for developing deepwater fields, it raised the cost of material and equipment, forcing companies to shelve projects.

But now costs are coming off and the industry is getting optimistic, sources said, adding that projects that were shelved in 2007 are back on the drawing board.

The price of jack-up rigs has fallen 10% from $190 million per unit in 2005 to $170 million these days, according to a Singapore-based shipyard source. The price of heavy-duty ship-plate, which is a key raw material for tankers and platforms, has fallen by 40% in the last 12 months, he added.

The market is expecting a new wave of engineering, procurement and construction tenders for the development of hydrocarbon resources including China's first deepwater project, Liwan, Malaysia's third deepwater field, Malikai, and several Indian fields, sources said.

"We are expecting a series of new field development contracts off the Mumbai coast while major field rejuvenating contracts involving mature fields such as Mumbai High are expected to continue," S.V. Rajadhyaksha, business development director at Leighton Contractors (India), said.

He said he expected Indian oil and gas companies to invest between $8 billion to $9 billion on field rejuvenation programs over the next three years, and expected India's state-run Oil and Natural Gas Corporation to announce several new field developments including the Mumbai High North. Rajadhyaksha was speaking on the sidelines of Leighton International's launch ceremony for its new pipe-lay barge.

UK-based energy consultant Wood Mackenzie echoed a similar view in a report published Thursday in which it said it expected upstream oil and gas spending to return to growth by 2011 and reach around $350 billion in 2012.

The predicted level for 2012 is higher than the $325 billion estimate for 2009 and 2010 but below the five-year peak of $370 billion of 2008.

Woodmac noted that several major projects would be implemented next year, including Gorgon in Australia, Rumaila in Iraq, Blocks 17 and 31 in Angola and the Kearl project in the Canadian oil sands sector.

However, it said, "overall, we expect such commitments to be balanced by the prevailing caution in the industry, as companies await convincing evidence that the recovery will be sustained."

--Gurdip Singh, newsdesk@platts.com