Looking to 2012: What are the major challenges occupying the minds of energy company senior executives in today's market?
A number of challenges, such as changing geopolitical relationships, the emergence of new competitors, changes in supply and demand dynamics, social and environmental pressures, and demographic shifts, are transforming and reshaping the oil and gas industry.
But there is one indisputable fact that affects not only our industry but the world as a whole: Global demand for energy will continue to increase dramatically, driven in large part by population growth and the strong desire of developing countries to achieve economic prosperity. Experts may disagree about the rate of growth, but there is no dispute that growth in the demand for energy is inevitable.
For non-NOC executives we have spoken to over the past year, the major challenges are, and will remain:
(1) Access to resources (reserve replacement),
(85%). [ISI 2011]
(2) Cost (finding and development costs per barrel) and availability of services,
BP ($12/BOE), Shell ($14/BOE) and ExxonMobil ($14/BOE) hold the lowest future development costs per unit of undeveloped reserves. Marathon ($36/BOE), ConocoPhillips ($25/BOE), and Hess ($20/BOE) hold the highest future development costs. [ISI 2011]
Industry organic finding and development costs were $17/BOE during 2008-2010 which compares to $17/BOE during the previous 5-year period. The result falls to $14/BOE when including reserve additions from oil sands, which were considered mining activities before 2009. Total replacement costs, which include reserve additions from oil sands and acquisitions, were $15/BOE for integrated oils during the period. Organic finding and development costs which exclude the impact of acquisitions and oil sands bookings were best at BP ($9), Shell ($11/BOE), and ExxonMobil ($13/BOE). The highest or worst organic replacement cost performance emanated from Marathon ($29/BOE), Chevron ($25/BOE), and Hess ($21/BOE). [ISI 2011]
(3) Availability of skilled personnel.
Global geopolitical forces are creating a highly volatile, rapidly fluctuating crude oil and gas market. Global competition for depleting resources continues to drive the need to lower operating costs and increase finding and recovery rates. The number of skilled resources continues to decline. Shareholders are pressuring companies for a return on their investments that is commensurate with other long-term investment strategies.