With the primary focus of reducing project footprints through fewer wells, smaller facilities, and the greater use of subsea tie-backs and existing infrastructure, projects have so far achieved lower costs, lower breakevens, higher prices and improved corporate finances.

Wood Mackenzie highlighted:

  • The upstream industry forges ahead with cost cutting

Projects that did get the greenlight are notably smaller. The average capital expenditure to develop 'major' projects (commercial reserves over 50 mmboe) sanctioned in 2017 fell to only US$2.7 billion, the lowest in a decade. The average project capex for those sanctioned over the last decade was double that at US$5.5 billion.

  • The average project capex fell from US$5.5 billion to US$2.7 billion

We are seeing significantly smaller projects, alongside a greater appetite for brownfield and expansion projects, and more subsea tie-backs. Brownfield developments are popular in the current capital-constrained environment, with less spend and execution risk than a greenfield project, and a faster route to first production. Both investors and operators want to see faster cycle times and quicker returns on upstream projects.

Jessica Brewer, Principal Analyst, said:

We should continue to see operators favouring a 'leaner and meaner' path in 2018...While it is good news that operators have found ways to grow in tough business conditions, the big question is whether the industry is actually spending enough.

Further, WoodMac forecasts a 15% decline in average breakeven cost to US$44/boe with the most competitive projects in shallow-water Norway, UK and Mexico. Gas projects will take centre-stage, aided by big expansion projects in Norway, Iran and Oman.

The report can be downloaded here.