Greenfield Pros: BP, Eni And Shell Deemed ‘Best-In-Class’ Among Oil Majors
In the high risk, high reward world of oil and gas exploration, keeping project development costs down has always been a crucial matter for exploration and production companies.
The recent downturn, which at its height saw the oil price slump to sub-$30 per barrel levels during the first quarter of 2016, laid bare the need for operational prudence, efficiencies and cost optimization when it comes to exploration projects.
It seems three European oil giants – BP, Eni and Shell – have “outperformed their peers” in this respect, according to research conducted by Oslo, Norway-headquartered global analysis and advisory firm Rystad Energy.
In its latest report, Rystad opines that investors should feel confident about the trio’s increased wave of new project approvals during the recent downturn. Its review of the performance of their recent projects against those of other operators shows that the three European oil giants have “best-in-class standards.”
Giving details Rystad notes that for projects that have started up since 2014, majors have collectively achieved greenfield costs of $13.50 per barrel of oil equivalent.
The said development costs were in addition to their collective $8.80 per barrel of oil equivalent lifting costs from 2017. For purposes of research, the study allocates 100% of a project’s cost to the headline operator who is executing it, i.e. does not split to equity shares (see below).
The findings throw up some interesting conclusions, according to Matthew Fitzsimmons, Vice President at Rystad Energy.
“We found that BP, Eni and Shell introduced over $109 billion of new greenfield projects below the industry average greenfield cost and were still able to achieve industry-leading lifting costs in 2017. For instance, BP’s $6.0 billion investment in the Khazzan Phase 1 and Makarem projects in Oman highlighted their execution excellence by achieving greenfield costs below $5 per barrel of oil equivalent.”
Conversely, despite starting-up nearly $75 billion worth of project investments, ExxonMobil’s greenfield performance on the PNG LNG Phase 1 and lifting cost performance on Kearl Phase 2 have deteriorated their overall marks to trail industry averages (weighted average for majors).
“We’ve noticed that ExxonMobil’s greenfield investments have been virtually non-existent since 2014,” Fitzsimmons adds. “Their only major greenfield project approval since 2015 was the $4.4 billion Liza Phase 1 FPSO project in Guyana.”
That said, the outlook is not all glum for the world’s largest international oil company. “We’ve also noticed that ExxonMobil has improved its greenfield cost performance since 2014 as it gears up to take on the challenge put forth by the company CEO to double earnings by 2025.”
Looking to build on recent success, BP, Eni and Shell have all been aggressively approving greenfield projects during the downturn. Since 2015, the trio have approved some $64 billion worth of greenfield projects. BP alone approved over $27.6 billion of projects during the recent downturn.
“BP’s best-in-class lifting costs from 2017 of below $6 per producing barrel should give investors confidence when all these new projects come on-line,” Fitzsimmons says.
“Eni’s recent $25.4 billion greenfield approvals have exclusively been to bolster its offshore portfolio. The company’s investments in several mega offshore projects, such as Coral FLNG, Sankofa East FPSO and three phases of Zohr, are good news in relation to the offshore industry’s attempt to rebound.”
The jury is still out on whether the boom times are back, with the oil price oscillating in a relatively higher $60-80 per barrel bracket, though still well below three-figure prices last seen in 2014.
Nonetheless, Rystad reckons the majors are on course to approve over $37 billion in oil and gas projects during the 2018 calendar year, with over 30% (or $12 billion) of those were approved during the second quarter alone.
As for the “best-in-class” trio, Fitzsimmons feels they are “well positioned to build on their industry leading greenfield and lifting cost performance.”