Oil, gas projects worth $1.5 trillion at riskStaff writer ▼ | September 22, 2015
Wood Mackenzie's analysis shows that while operators are seeking an average cost reduction of 20-30% on projects, supply chain savings through squeezing the service sector will only achieve around 10-15% on average.
Analysis New projects are uneconomic at $50 a barrel
Illustrating the need to reduce costs in the industry, Wood Mackenzie's analysis estimates that $1.5 trillion of uncommitted spend on new conventional projects and North American unconventional oil is uneconomic at $50 a barrel.
James Webb, Upstream Research Manager for Wood Mackenzie explains: "As the upstream industry responds to the low oil price, investment is down $220 billion in 2015 and 2016 compared with our pre-oil price crash projections.
"In addition to reduced activity onshore North America, a total of 46 projects have been deferred as a result of the oil price fall. We estimate that as much as $1.5 trillion of investment spend destined for new (pre-sanctioned) and US tight oil projects is now out of the money, or in starker terms, uneconomic at a $50 oil price. This spend is very much at risk."
So how can the industry achieve cost savings of 20-30%? "Additional measures are needed to manage costs: re-working field development plans, optimising project design and more innovative approaches to project management will all play important parts," Mr Webb responds. ■