Fitch: Current oil prices unsustainable in the long run

Average full-cycle costs at major European oil companies fell by 13% last year, according to Fitch Ratings’ analysis. All-in upstream costs remain well above current oil and gas prices, but the integrated business model of these firms make them more resilient to low crude prices.

According to the credit ratings agency, they saw a less-steep decline in earnings compared to upstream-focused producers, which may need to cut capex more aggressively to the detriment of long-term production prospects.

Average full-cycle costs, which are equivalent to the level of realised oil and gas prices needed to break even in the long-term, dropped to USD62/barrel of oil equivalent (boe) in 2015 from USD71/boe in 2014, based on the results of BP, Shell, Total and Eni, Fitch said.

Adjusting these figures to take account of the difference between the average realised price and the average Brent price, we estimate that European oil majors’ upstream divisions needed a Brent price of USD90/barrel (bbl) to break even in 2015, Fitch added.

Current prices unsustainable in the long term

Excluding North American operations, where a drop in reserves has had a big impact on finding, development and acquisition costs for BP and Shell, the average Brent break-even price was around USD73/bbl, a figure which is, according to Fitch, still well above market prices, and support the credit agency’s view that current prices are unsustainable in the long term.

Prices significantly below the long-term breakeven level should result in lower investment and lower production over time, which should push prices upwards, Fitch added..

“Operating cash costs, which include the production costs reported by companies and an assumed USD3/boe of selling, general and administrative expense, dropped 19% to USD18/boe in 2015. This corresponds to a Brent price of USD26/bbl and means that companies’ upstream divisions continue to generate positive operating cash flows. We believe a Brent price below USD30/bbl, which was tested early this year, would not be sustainable even in the short term as it would result in production being halted at marginal fields with higher operating costs,” Fitch concluded.

Share this article

Follow Offshore Energy Today

Events>

<< Sep 2019 >>
MTWTFSS
26 27 28 29 30 31 1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 1 2 3 4 5 6

Africa Oil & Power 2019

The Africa Oil & Power conference will bring together an elite class of ministers and senior-level government…

read more >

OWI LATAM 2019

Over the two-day conference, 25+ expert speakers will share exclusive insight on how to develop an integrity, production and P&A strategy…

read more >

Uganda International Oil and Gas Summit 2019

Uganda International Oil & Gas Summit will once again examine the industry’s developments…

read more >

Argentina Oil and Gas Expo 2019

The Argentine Oil and Gas Institute (IAPG) organizes the Argentina Oil & Gas Expo bringing together the most…

read more >

Jobs>

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply