Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Oil Majors Near Inflection Point As Spending Rises

Commodities / Crude Oil Jan 30, 2019 - 06:10 PM GMT

By: OilPrice_Com

Commodities

Oil prices are still down sharply from the highs of October 2018, but the industry may still increase spending this year. The cost of developing new projects might rise along with higher spending levels.

A survey of top industry executives by DNV GL suggests that capital spending on oil and gas could rise in 2019. Of the 791 senior professionals in the energy industry surveyed by DNV GL, 70 percent said they plan on either maintaining or increasing capex this year. That is up significantly from the 39 percent who said the same in 2017.

“Despite greater oil price volatility in recent months, our research shows that the sector appears confident in its ability to better cope with market instability and long-term lower oil and gas prices,” said Liv Hovem, the head of DNV’s oil and gas division, according to Reuters. “For the most part, industry leaders now appear to be positive that growth can be achieved after several difficult years.”


On the flip side, the cost of developing new projects could be on the rise as well. The oil market downturn that began in 2014 led to steep cost deflation, with falling costs for services, equipment and labor. But those cost reductions appear to have bottomed out.

A report from Muktadir Ur Rahman of Apex Consulting finds that the cost of development for the seven largest oil companies – BP, Shell, Eni, Chevron, ExxonMobil, Total and ConocoPhillips – are set to rise. Apex’s “Supermajors Cost Index” measures the costs of the oil majors, which is not only useful to understand costs for those specific companies, but also because it offers a proxy for industry-wide trends.

The industry appears to once again be at an inflection point. In the early 2000s, the oil majors threw mountains of cash at developing new oil and gas reserves with a seeming indifference to cost. Large-scale projects – ultra-deepwater, oil sands, major LNG export terminals – repeatedly suffered from cost overruns and delays. Spending escalated dramatically, but so too did oil prices. That masked the runaway spending problem for a period of time. The blowout in spending put incredible pressure on supply chains, which reinforced cost inflation. Apex Consulting’s Supermajors Cost Index nearly doubled between 2011 and 2014.

The crash in oil prices in 2014 led to dramatic overhaul across the industry, putting an end to the era of mega-projects. Layoffs, asset sales and widespread project cancellation led to deflation. Companies also became more efficient, using more standardized equipment, better technologies while also taking a more cautious approach to investment decisions. Apex Consulting said its Supermajors Cost Index fell by 41 percent between 2014 and 2017.

However, the index in 2017 was still 16 percent higher than it was in 2011, a period when oil prices were much higher.

Some majors have fared better than others. Apex singles out Eni, the Italian oil giant, as the one that has had the most success in keeping costs under control, followed by Chevron and Total. But the other four companies – BP, Shell, ConocoPhillips and ExxonMobil – saw cost inflation between 2011 and 2017, despite the bust in oil prices that began in 2014.

Why was Eni successful? Apex says the Italian oil company began “high-grading” its portfolio, focusing only on its best assets. It also standardized equipment, deployed technologies that cut drilling and completion times, and improved project execution. The result was a 55 percent decline in the cost of producing a barrel of oil between 2011 and 2017.

At the other end of the spectrum is ExxonMobil. “ExxonMobil went from having one of the lowest development costs per BOE in 2011 to having the highest amongst the supermajors in 2017,” Muktadir Ur Rahman wrote in the Apex report. A big reason for this was Exxon’s decision to downgrade its oil reserves in 2016.

Looking forward, the uptick in spending on offshore is a sign that the oil majors feel confident they can begin greenlighting new projects even in a world of price volatility. “With the level of capital spending in 2018 expected to increase by 5% compared with 2017, it looks like the industry is gradually moving into a growth phase,” Muktadir Ur Rahman wrote. Ironically, this is occurring as U.S. shale is beginning to slowdown.

The resurgence in FIDs for new oil and gas projects around the world could lead to cost inflation all over again. Laid off workers have left the industry altogether. The slack in the services sector will disappear as projects pickup. Meanwhile, tariffs on steel and other components could add to project costs as well.

The Apex report says that in order to keep costs in check, “the industry needs a new business model, one that encourages greater collaboration and appropriate risk-sharing to prevent the recurrence of the runaway cost escalations of the past.”

By Nick Cunningham of Oilprice.com

Link to original article: https://oilprice.com/Energy/Crude-Oil/Oil-Majors-Near-Inflection-Point-As-Spending-Rises.html

© 2019 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