SINGAPORE – Although overall well numbers will dip in 2015, Wood Mackenzie says drilling activity in 2016 is set to recover as many explorers seize their chance to drill at lower costs.
In its report “Upstream cost deflation: how much could costs of exploration fall?” Wood Mackenzie concludes that exploration deflation will average 33% by 2016, comprising three global elements that are locally compounded by favorable exchange rate moves: like-for-like costs will decline by 19%; simplification of activities could save 5%; efficiency improvements will save another 5%; and US dollar strength will save 4% overall.
Dr. Andrew Latham, vice president Exploration Research for Wood Mackenzie, explains: “Rising costs are not a new problem for explorers. Over this decade, inflation has more than offset price gains and left much of the industry struggling to create value. Now that prices have fallen sharply, this problem has become acute. In the short term, many explorers will react by simply spending less. But what they really need is lower costs.
“Only about half of these gains will be enjoyed during 2015 as contracts unwind and operators take time to adopt new practices. We expect the full benefit during 2016, unless oil prices recover quickly.”