Editorial

Has upstream kicked its cost problem?

The upstream oil and gas industry has been on a robust cost reduction drive since oil prices collapsed in mid 2014. The majority of the industry, both operators and the supply chain, have implemented significant cost reduction initiatives over the past 18 to 24 months.

Their intention to focus on cost reduction and cost management comes through loud and clear in operators' public statements and leadership messages. But two years into the low-oil-price world, what has actually been achieved? And what are the industry's expectations for the future?

The industry is generally pessimistic when it comes to the sustainability of cost reductions.

Industry-expected cost levels in 2017, relative to cost levels in 2015 (rebased to 100) (source: 2016 Global Upstream Cost Survey)

To gauge the industry's progress on the cost agenda and the challenges remaining, we recently conducted our second annual survey of costs in the upstream oil and gas sector. We received responses from senior and middle level managers from operators — including Majors, IOCs, NOCs and Independents — and from services companies, with all major regions and resource themes represented. We asked questions on:

  • Changes in spend levels observed over the past year
  • Expectations for next year
  • Approaches employed by operators to reduce supply chain costs
  • The likelihood of recent cost reductions being structural and sustainable
  • Existing barriers to achieving cost sustainability

In this new perspective, we address some of the key results from the survey. We also discuss why it is so hard to make sustainable cost reductions, and provide insight into how to tackle the sustainability challenge.

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