Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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