Oil and Gas Cost Outlook 2020

Oil and Gas Cost Outlook 2020

The Oil and Gas Authority (OGA) recently published the UKCS Operating Costs 2018 report, which gave some interesting insights on oil & gas costs for the region.  

Key takeaways from the OGA report were that costs in 2018 were stable due to the recovery in oil prices and cost-cutting efficiency measures remained in place, whilst UK production saw a 4% increase and an extra 70,000 boe/day.

Total OPEX in the UK was up £433 million from 2017 and the unit operating cost was 2% higher at 11.6 £/boe, or 15.5 $/boe.

The numbers from the OGA underline the current mood in the industry where higher prices and more positive sentiment are still being met with caution. Companies that were hurt in the oil price collapse in late-2014 to 2016 are still wary of being overstretched and this is being reflected in the supply chain, where margins are slimmer for service companies.

For 2019 and 2020 we can expect the cost numbers to remain around current levels. Brent crude prices started 2018 at $66.00 before rallying as high as $84.00, but the rally couldn’t be sustained and the 2018 close was $57.00. 2019 saw a smaller range and we are now seeing Brent trade at $62.00 so the hopes for higher prices are tempered at present.

For a CAPEX outlook, the same measured approach will be seen and we can sue Shell as example who stated in a recent strategy update that their total CAPEX would be in the range of $25-30 billion “through 2020”, and underlined that “$30 billion would be the ceiling, even in a high oil price environment”.

The OGA costs outlook and the comments from oil major Shell are a reminder that caution still remains in the industry and cost-cutting measures are still being enforced. Companies should base their expectations on the 2018-2019 environment in the absence of higher oil prices.

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