• 4 minutes End of Sanction Waivers
  • 8 minutes Balancing Act---Sanctions, Venezuela, Trade War and Demand
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 14 minutes What Would Happen If the World Ran Out of Crude Oil?
  • 3 hours At Kim-Putin Summit: Theater For Two
  • 6 hours Permafrost Melting Will Cost Us $70 Trillion
  • 4 hours NAFTA, a view from Mexico: 'Don't Shoot Yourself In The Foot'
  • 7 hours UNCONFIRMED : US airstrikes target 32 oil tankers near Syria’s Deir al-Zor
  • 11 hours New German Study Shocks Electric Cars: “Considerably” Worse For Climate Than Diesel Cars, Up To 25% More CO2
  • 7 hours How many drilling sites are left in the Permian?
  • 8 hours Nothing Better than Li-Ion on the Horizon
  • 19 hours Occidental Offers To Buy Anadarko In $57 Billion Deal, Topping Chevron
  • 7 hours Russia To Start Deliveries Of S-400 To Turkey In July
  • 19 hours Facebook Analysts Expect Earnings Will Reinforce Rebound
  • 5 hours "Undeniable" Shale Slowdown?
  • 3 mins Gas Flaring
  • 11 hours ..
Alt Text

This Supermajor Is Leading The Energy Sector

This supermajor has been standing…

Alt Text

How To Play A Recovery In Oil Prices?

A realistic correction in the…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

More Info

Trending Discussions

The Most Important Trend for Big Oil Today

Some very interesting stats released last week by analysts at Evaluate Energy. Showing exactly why big oil has some big issues to deal with.

Evaluate crunched the numbers on 2013 spending trends from the "big four" oil firms: Shell, ExxonMobil, Chevron and BP. And found that these petro-players are today spending a lot more cash than in previous years.

For one, lifting costs rose significantly in 2013. With total expenses up 10% on the year, as compared to 2012.

The more telling stat is overall development costs. Which showed an even bigger jump.

As the chart below shows, total development costs for the four majors leapt by over $10 billion in 2013. All told, costs have risen by nearly $30 billion since 2011.

Development Costs

The rising trend is even more apparent when we look at per-barrel development costs (the orange line in the chart above). With this metric having nearly doubled since 2009--from $25 per boe to over $45.

This cost escalation has had a direct impact on the majors' bottom lines. With earnings for the four firms having slipped two years in a row, down by a combined $30 billion since 2011.

This data jives with what I've been hearing from the field. With an accounting source in the industry recently reporting that high operating costs (including soaring general and administrative expenses) have all but eaten up profits at one of the largest mid-tier E&Ps in the U.S.

This is a trend that all energy investors need to be watching. Costs are a "silent killer" in the resource sector--slowly eroding profits and eventually leading to a collapse in valuations.

Successful E&Ps going forward will be the ones who proactively address this issue. Big firms like Apache have recently been selling down assets--with the company announcing yesterday it will shop its western Canadian assets for $374 million. Such a strategy of monetizing properties might be a good idea amid the current operating environment.

Oil-focused companies currently have a bit more leeway, with crude prices remaining high. But any pullback in prices--even 10% to 20%--could be a trigger for major financial crunches at numerous companies.

Something to bear in mind as we look for ways to profit from today's energy space.

Here's to adding up the costs,

By Dave Forest




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News