Scenting a recovery, oil producers ratchet up spending

Since the oil price slump, operators have cut investment, deferred projects and implemented tough cost discipline, slashing $910 billion from global capital expenditure estimates for 2015-2020. But while many operators believe the cuts will stick, a survey by WoodMac shows that in 2018, savings will be materially lower than in 2016-17.
The US onshore, for example, shows how quickly savings can erode when the market picks up. The US Lower 48 saw 2017 capex increase almost 50 percent on 2016 spending. Drilling spend in the region is expected to increase from $64 billion in 2017 to $90 billion in 2020.
Jessica Brewer, principal upstream analyst, said: “During the downturn, US producers were able to find ways to slash their costs quickly compared to the rest of the industry, and this has been critical to their recovery.”
She said it would be interesting to see how cost inflation plays out against productivity gains in 2018. The greatest gains were said to have already been realized with improvements in well productivity more than offsetting cost inflation in 2017. But now there were cost increases in the supply chain, spurred by higher rig activity and the drawdown of the backlog of drilled but uncompleted wells.
WoodMac’s analysis shows this trend has been playing out across all regions in 2017. Savings in operating expenditure (opex) have largely come from cuts in labor and services, streamlining operations and lower logistics charges.
One key beneficiary of these initiatives is Europe, which has seen a 25 percent reduction in operating expenditure (2017 vs. 2014) driven by lower labor and services costs, efficiency gains and higher production.
“However, in Asia-Pacific, South America and parts of Sub-Saharan Africa, unit opex is already starting to increase due to a lower cost base, local content requirements and the growing need for enhanced oil recovery in mature assets.”
Globally, Wood Mackenzie expects operating costs to start increasing from 2018, but remain 5-10 percent below 2014 levels in 2020.

Source: arabnews