Cost pressures improving project economics

Offshore staff

FAVERSHAM, UKDouglas-Westwood is questioning whether new projects are uneconomic without higher oil prices.

The analyst has reviewed more than 250 upstream capital projects sanctioned in the last four years to assess how industry costs are moving. It has found that three trends are driving a reduction in upstream capital costs, bringing some uneconomic fields over the threshold of viability.

The downturn led to E&P companies squeezing suppliers to achieve 10-15% price reductions to service and equipment companies.

Reduced activity caused rig and vessel rates to plummet, with day rates in some cases down by more than 60%. Over-supply will take some time to work its way out of the system as older units are scrapped.

Re-engineering of existing projects - returning to conceptual or front-end engineering and design (FEED) studies to re-work the development - has also delivered substantial cost savings, with further gains pending from standardization of engineering approaches, equipment, and even people.

These savings should be far more permanent.


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