Economic Report 2018

ECONOMIC REPORT 2018

Reductions of around one-third have been seen within the average costs of greenfield projects, although there are variations depending on the type of development. Cost reduction across these projects has been largely driven by activity reductions and efficiency improvements (including increased drilling efficiency, project re-scoping and design standardisation and simplification), which account for 63 per cent of the total cost reductions. The remaining 37 per cent of cost reductions have been driven by aspects such as lower rig rates, reduced equipment market prices and supply chain cost deflation.

Figure 25: Average Greenfield Project Cost Reduction

100%

90%

22%

80%

13%

70%

60%

50%

100%

40%

66%

30% Capital Expenditure

20%

10%

0%

Pre-Cost Reduction Activity and Efficiency- Driven Reductions

Market-Driven Reductions

Post-Cost Reduction

Source: Rystad Energy

There have also been significant overall reductions in brownfield capital investment, driven by a general lack of activity in this area and also through more efficient capital deployment.

Brownfield capital investment can be categorised into:

• Well capital investment – Accounting for 35 per cent of brownfield investment between 2014-18. This includes rig costs, wells services and drilling tools and commodities. • Surface capital investment – Accounting for 45 per cent of brownfield investment between 2014-18. This includes engineering, procurement, construction and installation services, topside and processing equipment. • Subsea capital investment – Accounting for 20 per cent of brownfield investment between 2014-18.

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