OIL AND GAS UPSTREAM MARKET OUTLOOK Capex and Opex Cost Trends in EMEA with a focus on Africa - Cost Insights
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IN PARTNERSHIP WITH OIL AND GAS UPSTREAM MARKET OUTLOOK Capex and Opex Cost Trends in EMEA with a focus on Africa March 2021 africa-oilweek.com #africaoilweek
IN PARTNERSHIP WITH
Overview and Executive Summary
Overview
The following market report includes PowerAdvocate’s forecasted change in the overall cost of key expenditures from
March 2021 to February 2022. These insights consider several Brent crude spot price scenarios to help prepare for and
manage 2021 expenditures under a range of market outcomes and levels of economic activity. The forecast includes
a point-to-point projection, meaning that the forecast is indicative of where we believe costs will be in February 2022
relative to where they are today.
Each of these categories can be broken down further to specifically estimate individual company forecasts based on
project, drilling requirements, and region, though that detail is not provided here. This data is typically used to aid in
budgeting and forecasting annual Capex and Opex, and as a data source for supplier negotiations.
Key Takeaways
From March 2020 to February 2021, the net change in almost all Capex and Opex categories, other than OCTG, was
moderate – most costs stayed flat or declined, which should have led to lower rates for operators.
Throughout 2020, market costs for many upstream items declined substantially after the market crash and have not
sufficiently recovered to pre-pandemic costs as of March 2021.
Cost increases across almost all Capex and Opex categories are forecast to increase by ~1%-12%.
Overall Capex rates in February 2022 are projected to be ~-1%-7.5% lower or higher than in March 2021.
– OCTG costs are expected to fall between ~13-20%. The historic increase of ~20% in the last 12 months has been
largely attributed to high steel costs. However, steel costs are now forecasted to fall over 30% throughout 2021 as
supply constraints are alleviated.
– Production Chemicals are likely to experience one of the most notable cost increase (~6.5%-11%) amid stronger
demand from all oil and gas industries. In addition, crude prices are expected to rise due to increased global
transportation activity and industrial.
Overall Opex rates in February 2022 are projected to be ~2%-9% higher than in March 2021.
2 | africa-oilweek.com #africaoilweek
IN PARTNERSHIP WITH General African Market Commentary Comparison to EU Cost Trends Historical costs have stronger downturns than those faced by EU operators, due to a deeper cut in production and rig levels across African producers. Forecasts are more muted than those for EU operators, due to a pessimistic 2021-2022 recovery outlook across African producers. Historical and forecasted materials category costs are largely similar to those faced by EU operators, given the global nature of the market for such goods. Other Notes on African Cost Markets A slight uptick in African upstream investment is expected 2021-2022 from FID projects delayed in 2020 – this optimism kept forecasted costs increasing despite uncertain production gains. Other factors affecting the African upstream market include OPEC curtailment directives and less favorable fiscal market terms compared to other regions (such as the EU). 3 | africa-oilweek.com #africaoilweek
IN PARTNERSHIP WITH
EMEA* Market Trend Forecasts by Capex
Category and Brent Crude Oil PPB
MARKET FORECAST BASED ON BRENT CRUDE SPOT PRICE
SCENARIOS (MAR ‘21 – FEB ‘22)
HISTORICAL
BASE
TOP CATEGORIES SHOULD-COST $80/BARREL $60/BARREL $50/BARREL
($70/BARREL)
(MAR ‘20 - FEB ‘21)
OCTG 20.2% -14.4% -12.9% -18.9% -20.1%
Onshore Drilling Rigs -12.1% 11.5% 12.6% 6.1% 3.0%
Drilling Fluids and Chemicals 8.3% 7.7% 9.9% 4.9% 3.9%
Wellhead Equipment Services -8.4% 8.8% 10.3% 4.1% 1.0%
Offshore Drilling Rigs -10.0% 11.2% 12.3% 5.8% 2.7%
Offshore Cementing Services -11.3% 10.5% 12.0% 6.0% 2.9%
Subsea Equipment 5.2% 2.8% 3.9% -4.1% -5.1%
Subsea Installation Services -10.3% 10.7% 12.2% 6.2% 3.1%
Overall Weighted Trend: -2.4% 6.1% 7.5% 1.3% -1.1%
Market forecast indicates Market forecast indicates
decreased costs increased costs
Note: *EMEA refers to Europe, Middle East and Africa, and consists of E&P operators
Source: 7,500+ proprietary global should-cost market models and $6Trillion+ global spend data
4 | africa-oilweek.com #africaoilweekIN PARTNERSHIP WITH
EMEA* Market Trend Forecasts by Opex
Category and Brent Crude Oil PPB
MARKET FORECAST BASED ON BRENT CRUDE SPOT PRICE
SCENARIOS (MAR ‘21 – FEB ‘22)
HISTORICAL
BASE
TOP CATEGORIES SHOULD-COST $80/BARREL $60/BARREL $50/BARREL
($70/BARREL)
(MAR ‘20 - FEB ‘21)
Compression Services -5.5% 4.7% 5.8% 3.6% 0.5%
Onshore Workover Rigs -10.5% 6.8% 8.3% 3.1% 1.0%
Well Testing Services -9.3% 7.4% 8.5% 3.3% 1.1%
Equipment Rental -11.4% 7.1% 8.6% 3.4% 1.2%
Offshore Support Vessel -3.1% 9.2% 10.6% 4.1% 1.1%
Production Chemicals 0.1% 8.4% 11.4% 10.0% 6.5%
Project Management and
-2.0% 7.2% 8.3% 3.1% 0.9%
Engineering Services
Helicopter Services -10.7% 8.0% 9.5% 4.3% 1.4%
Overall Weighted Trend: -6.5% 7.5% 8.9% 4.2% 1.7%
Market forecast indicates Market forecast indicates
decreased costs increased costs
Note: *EMEA refers to Europe, Middle East and Africa, and consists of E&P operators
Source: 7,500+ proprietary global should-cost market models and $6Trillion+ global spend data
5 | africa-oilweek.com #africaoilweekIN PARTNERSHIP WITH
Africa Market Trend Forecasts by Capex
Category and Brent Crude Oil PPB
MARKET FORECAST BASED ON BRENT CRUDE SPOT PRICE
SCENARIOS (MAR ‘21 – FEB ‘22)
HISTORICAL
BASE
TOP CATEGORIES SHOULD-COST $80/BARREL $60/BARREL $50/BARREL
($70/BARREL)
(MAR ‘20 - FEB ‘21)
OCTG 20.2% -14.4% -12.9% -18.9% -20.1%
Onshore Drilling Rigs -13.9% 6.9% 7.6% 3.7% 1.8%
Drilling Fluids and Chemicals 7.3% 7.7% 9.9% 4.9% 3.9%
Wellhead Equipment Services -9.1% 7.5% 8.7% 3.4% 1.1%
Offshore Drilling Rigs -15.2% 7.3% 8.1% 3.8% 1.8%
Offshore Cementing Services -12.4% 6.3% 7.2% 3.6% 1.7%
Subsea Equipment 5.2% 2.8% 3.9% -4.1% -5.1%
Subsea Installation Services -11.8% 6.4% 7.3% 3.7% 1.8%
Overall Weighted Trend: -3.7% 3.8% 5.0% 0.0% -1.6%
Market forecast indicates Market forecast indicates
decreased costs increased costs
Source: 7,500+ proprietary global should-cost market models and $6Trillion+ global spend data
6 | africa-oilweek.com #africaoilweekIN PARTNERSHIP WITH
Africa Market Trend Forecasts by Opex
Category and Brent Crude Oil PPB
MARKET FORECAST BASED ON BRENT CRUDE SPOT PRICE
SCENARIOS (MAR ‘21 – FEB ‘22)
HISTORICAL
BASE
TOP CATEGORIES SHOULD-COST $80/BARREL $60/BARREL $50/BARREL
($70/BARREL)
(MAR ‘20 - FEB ‘21)
Compression Services -6.3% 2.8% 3.5% 2.2% 0.3%
Onshore Workover Rigs -12.1% 4.1% 5.0% 1.9% 0.6%
Well Testing Services -10.0% 6.5% 7.4% 2.9% 1.0%
Equipment Rental -11.4% 7.1% 8.6% 3.4% 1.2%
Offshore Support Vessel -7.2% 7.0% 8.0% 3.1% 0.8%
Production Chemicals 0.1% 10.0% 11.4% 8.4% 6.5%
Project Management and
-6.5% 6.7% 7.7% 2.9% 0.8%
Engineering Services
Helicopter Services -12.2% 4.3% 5.1% 2.3% 0.8%
Overall Weighted Trend: -8.2% 6.0% 7.1% 3.4% 1.5%
Market forecast indicates Market forecast indicates
decreased costs increased costs
Source: 7,500+ proprietary global should-cost market models and $6Trillion+ global spend data
7 | africa-oilweek.com #africaoilweekIN PARTNERSHIP WITH Appendix Key Forecast Assumptions Market forecasts include market rate changes as well as inflation. The worst of the COVID-19 pandemic has lapsed, and effective vaccines will be distributed in Q1 and continue throughout 2021. This will result in strong global economic recovery and higher oil, metals, and fuel prices. Global GDP growth is expected to reach 4.3% in 2021 and 3.7% in 2022, compared to -5.4% in 2020. Brent prices are expected to be around $70 PBB (price per barrel) by the beginning of 2022. 2021 global upstream Capex expenditures are expected to be 2.4% less than post-pandemic estimates for 2020. 8 | africa-oilweek.com #africaoilweek
IN PARTNERSHIP WITH Appendix (ctd.) Market Forecast Methodology The cost trends included are point-to-point forecasts, i.e. forecasts on how costs should move in relation to a specified point in time. This report includes both a historical look-back at how costs have moved in March 2020, relative to costs in February 2021, as well as forecasts on how costs will change by the beginning of 2022, based on where costs were in March 2021. Cost trends should be interpreted as the change in the overall should-cost based on changes in underlying production costs, commodity costs, supply and demand, and underlying market inflation. Market costs for key upstream items and services (“categories”) are impacted by refining activity and consequential supply and demand pressures. The forecasts summarise expected market inflation or deflation under four separate Brent Crude spot price scenarios ($70 (base), $80, $60, and $50/barrel) to capture expectations under a range of price points in the next 12 months. Categories are selected based on their relative importance to annual third-party expenditures by volume of spend for an upstream firm. While the selected categories will be most relevant to upstream firms, the cost trends in this report apply broadly to the O&G industry. For example, Equipment Rental costs are equally applicable for midstream and downstream firms. Categories are designated as Capex if the majority of spend for that category for an upstream firm is accounted for as Capex dollars. Similarly, categories are designated as Opex if the majority of spend for that category for an upstream firm is accounted for as Opex dollars. PowerAdvocate’s perspective on typical upstream expenditures is based on our proprietary database of $6T+ in energy global spend data. 9 | africa-oilweek.com #africaoilweek
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Data Assets Directly Linked to Value-Add
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specialised expertise in supply chain, cost optimisation and risk management
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Amongst Others...
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10 | africa-oilweek.com #africaoilweekIN PARTNERSHIP WITH Africa Oil Week NOVEMBER 2021 For over 27 years Africa Oil Week has been the meeting place for Africa’s most senior stakeholders. It’s where they come to set out the future direction of the continent’s upstream oil and gas sector, secure major deals and lucrative new partnerships. Senior experts including Ministers, CEOs and senior representatives from NOCs, IOCs, Independent Oil Companies, GEOs, oilfield and business service providers make up the attendee list. The cutting-edge agenda and world-class speakers each year tackle the industry’s biggest topics and the next edition will prove pivotal in reigniting the African upstream. REGISTER NOW About PowerAdvocate Since 1999, PowerAdvocate has been supporting Energy and Natural Resources companies to generate direct tangible impact to their bottom line through cost-effective growth strategies and operational cost management. We partner with customers to solve some of the world’s most complex supply chain digitalisation, supply risk and cost management challenges ranging from portfolio cost optimisation, ESG and local content programs, to post-M&A value creation, using our proprietary data assets and industry experts. For more information visit: poweradvocate.com For more information, contact: Nouran Ezzat, Director, EMEA Growth Strategy, PowerAdvocate | Nouran. Ezzat@poweradvocate.com 11 | africa-oilweek.com #africaoilweek
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