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Oil, gas projects worth $1.5 trillion at risk

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Staff 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.
Oil rig workers
Analysis   New projects are uneconomic at $50 a barrel
In order to ensure projects are economically viable, operators will also need to focus on project optimisation and adopt smarter ways of working with the service sector.

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.