Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Oil Majors' Costs Have Risen 66% Since 2011

Commodities / Oil Companies Mar 02, 2017 - 01:15 PM GMT

By: OilPrice_Com

Commodities

The oil majors reported poor earnings for the fourth quarter of last year, but many oil executives struck an optimistic tone about the road ahead. Oil prices have stabilized and the cost cutting measures implemented over the past three years should allow companies to turn a profit even though crude trades for about half of what it did back in 2014.


The collapse of oil prices forced the majors to slash spending on exploration, cut employees, defer projects, and look for efficiencies. That allowed them to successfully lower their breakeven price for oil projects. However, some of that could be temporary, with oilfield services companies now demanding higher prices for equipment and drilling jobs, in some cases upping prices by as much as 20 percent. The result could be an uptick in the cost of producing oil for the first time in a few years. Rystad Energy estimated the average shale project could see costs rise by $1.60 per barrel, rising to $36.50.

That does not seem like the end of the world. After all, those breakeven prices are still dramatically lower than what they were back in 2014. In fact, Reuters put together a series of charts depicting the fall in costs for shale production in different parts of the United States. Every major shale basin – the Eagle Ford, the Bakken, the Niobrara, and the Midland and Delaware basins in the Permian – have seen breakeven prices fall by as much as half since 2013. The slight uptick in costs expected in 2017 is a rounding error compared to the reductions over the past half-decade.

But that is just for shale drilling. The oil majors produce most of their oil outside of the shale patch, with much of their output coming from longer-lived projects in deepwater, for example. To be sure, some of the largest oil companies have made some progress in cutting costs over the past few years, but a new report casts doubt on the industry’s track record.

According to new research from Apex Consulting Ltd., the oil majors are still spending more to develop a barrel of oil equivalent than they were before the downturn in prices – in fact, much more. Apex put together a proprietary index that measures cost pressure for the “supermajors” – ExxonMobil, Royal Dutch Shell, Chevron, Eni, Total and ConocoPhillips. Dubbed the “Supermajors’ Cost Index,” Apex concludes that the supermajors spent 66 percent more on development costs in 2015 than they did in 2011, despite the widely-touted “efficiency gains” implemented during the worst of the market slump. It is important to note that this measures “development costs,” and not exploration or operational costs.

However, performances varied by company. Eni, for example, saw its development costs decline by 32 percent between 2011 and 2015, a notable achievement. Chevron and ExxonMobil also posted efficiency gains, although more modest figures than Eni. Chevron’s costs fell 6 percent and Exxon’s were down 5 percent over the five-year period.

At the other end of the spectrum is Royal Dutch Shell, which saw development costs quadruple. ConocoPhillips and BP fared only slightly better, with costs roughly doubling over the timeframe. As a whole, the development costs for the group of “supermajors” rose 66 percent to $18.39 per barrel.

After the collapse of oil prices in 2014, the cost index did decline. Oil producers squeezed their suppliers, streamlined operations, and improved drilling techniques. But costs still stood 66 percent higher than in 2011.

The index points to underlying structural increases in development costs for the broader industry.

At $18 per barrel, the cost figure would seem rather low. But it is important to note that this is just for “development costs,” which represent just over half of a company’s total cost. That figure excludes the cost of exploration as well as funding ongoing operations. So the “breakeven price” so often quoted in the media is actually quite a bit higher. BP, for example, recently admitted that its finances will not breakeven unless oil trades at roughly $60 per barrel.

The supermajors are in a tricky position. They are trying to cut back on spending in order to fix their finances and pay down the massive pile of debt that they have accumulated in the past few years. However, their reserves will decline if they fail to replace them. Exxon, for example, only replaced 67 percent of the oil it produced in 2015.

Moreover, as Apex Consulting notes, oilfield services might demand higher prices in the future as drilling activity picks up. Right now, offshore rigs are still underutilized, meaning that price inflation has yet to kick in.

In other words, the decline in costs post-2014 are, at least in part, cyclical. Costs will rise again as activity picks up unless oil producers work with their suppliers to address the underlying structural costs of oil production.

Link to original article: http://oilprice.com/Energy/Energy-General/Oil-Majors-Costs-Have-Risen-66-Since-2011.html

By Nick Cunningham

© 2017 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules