One of the most critical pieces of news for the E&P sector came this month.
Not a new discovery. Or a high-impact drilling technique. In fact, this development didn’t come from geologists or engineers at all.
It came from a group of accountants.
Namely, mega-bookkeepers Ernest & Young. One of the leading firms globally in auditing and analyzing finances for oil and gas producers.
This outfit sounded a warning on the future of the E&P sector. Telling investors they need to beware of a silent killer that is stalking producers in some parts of the world. Places stock buyers should be looking at reducing their exposure.
The accountants also gave some hints on which E&Ps appear immune to this potentially company-ending issue. Ideas that suggest a certain group of investments in the oil and gas space are going to outperform significantly.
The issue driving this risk (and opportunity) comes down to one word: costs.
Ernest & Young looked closely at costs for the global E&P world as part of the firm’s annual “Global oil and gas reserves study”.
Their findings were astonishing.
The numbers left little doubt that costs in today’s oil and gas world are weighing on producers like never before. Production costs in 2012 rose 6% globally—driven by higher prices for labor and services.
Now, 6% isn’t a huge amount on its own. But numbers like this start…