Operators could see up to 40% in cost reductions- Wood Mackenzie

EDINBURGH, United Kingdom -- The drop in oil prices has led to an unprecedented level of uncertainty going into 2015, especially for the prospects of the North American upstream oil and gas sector. While there is a lack of consensus about when oil prices will stabilize and at what level, Wood Mackenzie expects service cost relief, asset high-grading, and efficiency improvements in operations.
"We are already seeing this play out as upstream operators announce drastically reduced capital budgets for 2015, yet forecast increased production growth (in aggregate), " says Delia Morris, senior North American upstream analyst for Wood Mackenzie.  " As long as operators can move to the core areas of plays and sub-play breakevens continue to fall with the drop in service costs, producers will keep chugging along until funding dries up."
The following are the key themes identified by Wood Mackenzie' s analysts for 2015, primarily focused on the upstream sector, but including notes on the prospects for North American LNG, NGL markets, and U.S. policy around Keystone XL and the U.S. crude export ban.

1. Upstream costs are the silver lining for operators:  As companies have decreased capital budgets, we are seeing a slowdown in drilling activity. This reversal is already having an impact on the demand for rigs, pressure pumping fleets, and other key equipment and services. If the oil price were to average around $50/bbl in 2015, Wood Mackenzie anticipates a 40% decline in the horizontal rig count compared to 2014. Rig day rates could fall by 30% or more. While other equipment and services will see smaller cost reductions in percentage terms, Wood Mackenzie expects the overall impact on drilling and completion costs to be at least a 15% decline compared to 2014, with some companies achieving as much as 33%-40% in cost reductions.
2. Refracs start to look better than new fracs: Over the past year, lower U.S. natural gas prices drove Marcellus operators to shift attention to horizontal refracs in order to increase recovery rates at reduced costs (~25% lower expenses for a standard well). Successful refrac testing also took hold in gas-rich plays like the Haynesville and Barnett where some operators were able to re-set production rates to early life profiles and, in some cases, increase performance.

Read the full analysis:
https://www.youtube.com/watch?v=iIpVHAnwsL4