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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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2018 Oil & Gas Projects To Break Even At $44 Per Barrel

Oil rig

New oil and gas projects to be sanctioned this year will likely have a 15-percent lower breakeven level than last year’s, at US$44 per barrel of oil equivalent, Wood Mackenzie analysts said in a fresh report on short-term developments in the upstream sector.

The consultancy sees as many as 30 new projects coming on stream this year, but notes that most of these will be small-scale ones, signaling the lingering wariness among oil and gas players of major investments.

This is a continuation of a trend started after the 2014 price crash, which saw last year’s average capex per major project—deposits with commercial reserves of 50 million boe or more—drop to US$2.7 billion from US$5.5 billion on average for the last 10 years.

Besides this new frugality, Wood Mac’s analysts note, the oil and gas industry has paid much more attention to brownfield developments and production expansion projects, with offshore operators increasingly turning to subsea tie-ins instead of tapping new fields.

Again, this is a sign of the new cost discipline that oilfield operators have been forced to apply amid the price crisis from the last three years. This trend will continue this year as well, with a focus on gas projects, plus several large expansion plans in Iran, Norway, and Oman. Related: Oil Prices Head Higher On Large Crude Draw

Wood Mac analysts point out, however, that this leaner-and-meaner approach cannot be a long-term strategy, and mentions several megaprojects in the LNG segment, all set for a final investment decision this year. These include production expansions in Qatar and Papua New Guinea, as well as Mozambique LNG, involving Anadarko, Mitsui, and three large Indian companies, and LNG Canada, which features participants such as Shell, PetroChina, Kogas, and Mitsui.

The consultancy expects some of these projects to delay their final investment decision until later this year to avoid “all rushing through that door at the same time and then see costs blow-out.” More generally, this year’s final investment decisions will show whether the industry has learned its lesson from the latest crisis or if it will be back to the boom-and-busts cycles we all know so well, Wood Mac says.

By Irina Slav for Oilprice.com

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  • david on April 05 2018 said:
    Interesting article. We do know that breakeven is ever changing with different companies and different basins. Existing or non existing infrastructure and the drilling and completion costs play a large role in breakeven. In the past 3 years drilling companies have taken a beating by slashing cost to all time lows. So, should oil prices rise you must assume the drill cost and infrastructure cost will rise as well. Other leasehold fixture cost rise as soon as the price rises, so, as there is no real locked breakeven price over al long period of time.

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