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Editorial Dept

Editorial Dept

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This Might Be The World’s Lowest-Cost Oil

Quick, what do the following three events from last week have in common?

1)    Shell warning on lower-than-expected profits for the past quarter

2)    India raising its domestic natural gas price to $8 per mmbtu

3)    Malaysia bringing online one of its newest offshore oil fields

Any guesses? The answer, as it turns out, comes down to one single word—which might be the most important issue facing the entire energy industry today. As well as the biggest opportunity for foresighted companies in the sector right now.

Costs.

It’s simply getting very expensive to operate in the oil and gas business.

Just ask Shell shareholders.

They watched their holdings in the petro-major plunge 4% in a single day last week. After the company issued a warning that its fourth quarter financials would be “significantly lower than recent levels of profitability.”

Why the fall in profits? Shell cited a number of factors—disruptions in Nigeria, maintenance work, and falls in currencies like the Australian dollar.

But there was one cause the company said was chiefly responsible for the underperformance. Higher exploration costs.

This isn’t a new story. Rising rates for drilling rigs, parts and services have been pinching corporate profits across the E&P sector of late. Ernst & Young recently warned that such increased expenses are one of the biggest challenges facing the oil and gas industry—with margins having contracted…




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