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DW Monday: E&P Capex Concerns – What’s in a number?

By July 8, 2013 November 28th, 2019 No Comments

DW MondaySome of our clients are scratching their heads. Brent oil prices remain above $100 / barrel, but a number of high-profile projects have been deferred. ExxonMobil pulled the plug on Hadrian North, one of the biggest finds in the Gulf of Mexico, with a reported breakeven price of $76 / barrel. Statoil deferred the Johan Castberg (Skrugard) project at $81 / barrel (including proposed Norwegian tax increases). Meanwhile, Barclays Capital reports that oil companies are preparing their annual budgets at $101 Brent for oil projects. And no one really anticipates that oil prices will fall much below $90. Even the futures curve is above that level through 2018.

Why then did ExxonMobil and Statoil – as well as BP, Woodside, and OGX – cancel or defer projects ostensibly with breakeven costs well below current and anticipated Brent prices? Are these breakeven project prices really saying what we think, has the calculus changed, or have operators become more conservative in their attitudes towards capital intensive, long life cycle projects? How much of these deferrals are attributable to a continuing rapid growth of E&P Capex which is no longer being offset by similar increases in oil prices? Should we expect this pattern of deferrals to continue?

We’ll be taking a look at the issue in our ‘Capex Compression’ multi-client report and re-estimate breakeven costs for a sampling of major projects.

Steven Kopits, Douglas-Westwood, New York
+1 212 786 7507 or steven.kopits@douglaswestwood.com