Confidence Relates to Commodity Prices, Capital Investment and Stable Development Costs, Says Study Based on Survey of Oil and Gas Executives

BOSTON, MA (May 6, 2019) – Despite uncertainty at the start of 2019, oil and gas operators are now optimistic about commodity prices, capital investment and the level development costs, according to a new L.E.K. Consulting report based on a survey of 200 oil and gas companies that focus on exploration and production (E&P) in North America.

While 2018 was a tale of two halves – a strong start to the year had analysts calling for $100 per barrel but the year ended with an 18-month low of $42 per barrel – most operators see oil prices stabilizing in the range of $55 to $60 per barrel for the balance of this year. According to L.E.K.’s 2019 Oil and Gas Study, some even think $65 to $75 per barrel is more likely.

“Even though positive market sentiment matches with recent first-quarter price gains, the question is whether 2019 can maintain a rally and avoid another tale of two halves,” says Nilesh Dayal, report coauthor and Managing Director at L.E.K. Consulting. “And operators think it can. In fact, they believe prices will be high enough to maintain capital spending throughout 2019 and possibly even drive growth relative to last year.”

In a sign of the times – as E&P companies must live within cash flows and manage price volatility – over 50% of respondents say they need three to four quarters of sustained pricing before increasing their budgets, whereas E&Ps historically needed only one to two quarters to feel confident about capital budgets.

Nearly 80% of respondents say they expect stable costs for 2019, with the remainder projecting modest increases of up to 5%. Transport and logistics were cited as key causes of potential cost increases, while sand, water, pumping services and drilling were viewed as being more stable.

“Looking forward, E&P operators believe that technology solutions need to shift focus and improve longer-term productivity. They say advanced recovery techniques will be not only the most important play for investment, but also the most important new area for technology improvement,” says Dayal.

In addition to advanced recovery techniques, the most critical technologies for E&P operators, according to the L.E.K. study results, are digital solutions. These include logistics tracking, drone technology and broader oilfield digital.

“In the coming year, E&P operators should investigate ways to maintain budget flexibility, identify meaningful operational cost levers, like digital solutions, and form a sustainable and balanced asset strategy,” says Dayal. “Consolidation can accomplish these goals and really should remain a strategic consideration for larger E&Ps.”

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