Rising risks in Lower 48 opex: marginal impact or deal destroyer?

Operating cost (opex) analysis is often only a focus if prices are soft and margins are squeezed. However, early signs of rising opex costs are underway, with some US E&Ps – particularly oil-focused operators – starting to show creep in the cost of doing business via lease operating expense (LOE) figures. Our cost analysis shows that water, power, labor and well workover requirements are the most significant areas of concern. Digital initiatives and consolidation can help manage escalating opex, but not forever. In this insight, we provide a bottom-up approach to understanding the riskier elements of opex inflation and explain how conservative and even traditional model assumptions can be problematic for asset buyers. It’s a real challenge at today’s prices. So, how much more difficult would the situation be if prices fall?