A new study from Fitch Ratings has said that exploration and production (E&P) costs in North America did not meaningfully pressure global oil prices last year. Conclusions in the report are based on 31 companies’ life cycle costs. The study shows that the full cycle revenues required by the average North American E&P company rose by just 1% year on year. When taking into account changes in mix, fuel cycle oil and gas prices declined approximately 1.1% and 1.4% on a one year and five year basis, respectively.
The report noted that the biggest source of cost pressure for North American producers remains high finding, development and acquisition (FD&A) costs, followed by higher production costs. The efficiency gains in shale plays have helped to keep overall costs increases in check however.
Full cycle costs for North American E&P companies have demonstrated a trend of cost moderation over the last few years, according to Fitch. This suggests that much of the run up in global oil prices can be attributed to non-fundamental factors, geopolitics, monetary policy, etc, rather than rising unit costs. Shale has also been a key factor in stabilising costs in the US, Fitch has said. This is given the ongoing trend of efficiency gains in shale plays, as well as increased allocation of capex budgets to shale among independent E&Ps.
Fitch has also noted that North American cost trends may not be fully representative of cost trends seen globally, given that shale development has not spread as rapidly as outside North America. Yet, favourable cost trends in North America matched rapidly growing production and have had a moderating effect on world oil prices. Fitch reportedly expects this will continue to be the case given expected rapid growth of shale production.
Adapted by Claira Lloyd
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