By Espen Erlingsen, Rystad Energy
Despite the high commodity prices and record high profits within the upstream industry, sanctioning of new oil and gas projects is not picking up as expected.
The total sanctioned green field investments for this year are estimated to end up around $130 billion, which is almost the same levels as last year, and considerably lower than the 2019 level. Sanctioning activity is growing within shelf and conventional onshore, while declining in deepwater. Next year we expect an increase in activity, with almost $200 billion predicted to get the green light.
One reason for the low sanctioning activity is the cost increase within the upstream industry. We continue to see datapoints indicating costs for new contacts are up 30% to 50%. One example is offshore floaters rig rates, which have increased from about $210,000 per day at the beginning of this year to almost $400,000. One way to measure the cost increase is to look at the development in total development capex per boe for new conventional projects, which measures how costs have developed for new offshore projects.
Apart from 2020, the metric has been about $5.5 per boe since 2017. This year the value is expected to increase to almost $8 per boe or a 30% cost increase.
Looking at tight oil, the average cost per normalized tight oil well measures the cost within the US tight oil industry. For 2022 we expect the average well cost to increase by almost 25%. Both these metrics tell the same story, costs are increasing within the industry.