Critical areas where the price of oil and associated costs changed the game
If your company is like many oil & gas companies, you have identified "cost" as one of its top issues today. Costs have tripled since 2000, with new discoveries coming from increasingly challenging and expensive environments, including deep water, unconventionals, oil sands and mature fields. The industry consequence is that there are fewer "cheap" barrels of oil available now, and there will be even less in future. Upward pressure on upstream costs and expectations of continued low oil prices have been cited by operators as the most important factors for reducing capital expenditures. Service companies will also continue to be challenged with the effects from reduced operator spend, pricing increases in key offer-for-sale (OFS) commodities and shortages of qualified labor in critical areas like engineering.
Along with this more complex E&P environment, margin squeeze for both operators and service companies is not a new occurrence, and was beginning to be felt even when vendors reported record revenues with oil prices over $140 a barrel in 2008. The drop in oil prices, from $110 in June 2014 to below $55 in December, has continued to put pressure on margins. As oil prices are reaching a relative equilibrium and as volatility recedes, oil prices are likely to stay in the $50-$70 per barrel range in the short and medium term; there is no question a challenging situation for the industry lies ahead.
Achieving profitability targets requires careful planning and insight on upstream cost drivers, trends, and detailed demand and supply forecasts. Developing strategies to minimize costs and optimize operational efficiency, knowing how to spend, where and when, has the potential to deliver increased net revenues. Download the Critical Upstream Cost Factors Infographic to see some of the cost drivers that impact investments and project CAPEX and OPEX.
Staff Writer June 16, 2015 IHS Costs Solution, Oil & Gas Industry
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.