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Is cost reduction the new normal?

1 minute read

The results of our third annual Global Upstream Cost Survey give us the opportunity to step back and look at what the industry has achieved on the cost agenda since 2014. Overall the picture is one of significant progress, with the indication of continued momentum over the next 12 months.

Let's start with the good news

The progress on cost reduction has been maintained as our chart below shows. When looked at overall, somewhere between 30-40% of costs have been taken out since 2014. There are variations between regions and operating environments but overall the picture is impressive.

Year-on-year cost change as reported in successive Upstream Cost Surveys

The expectations for the next 12 months are reassuring

Operators and suppliers are aligned on the view that further single digit reductions to costs can still be made. Perhaps this is a sign that the industry is maturing and adapting to an environment where efficiency improvement and action on cost is an ongoing priority.

But haven’t we been here before? There is understandably a lot of scepticism. In the last 2 years around 50% of respondents believed it unlikely that cost reductions can be sustained. There are reasons for pessimism: the margins of many suppliers are slim and the consolidation in the service sector is increasing the pricing power of the survivors as activity levels pick up.

2018 will be an interesting year as we see which of these forces holds sway. 

To read more about our Global Upstream Cost Survey results, read our full perspective