Industry Trend Analysis - Cost Cutting, Service Deflation Reflected In Lower Investment - MAY 2017

BMI View: Cost-cutting, service cost deflation and consolidation will contribute to lower total investment into the Norwegian oil and gas sector over 2017.

Investment into Norway's oil and gas industry will be weaker than previously thought, with the government now expecting a 11.6% decline in 2017. Investment continues to underperform as companies recover from the low oil price environment. However, investment in Norway will appear somewhat weaker due to extensive cost cutting and recent consolidation in the industry, as well as a continuation of service cost deflation, combining to reduce company expenditure.

A number of pre-FID projects in the Norwegian upstream have experienced notable cost cutting to project plans (see ' Reengineering Lowering Project Costs ' , August 31 2016).Increasing the use of tie-back solutions to leverage existing infrastructure and utilising subsea production technology has supported major sustainable cost savings across these projects. In our view, these changes, in addition to simplified concepts and greater standardisation of equipment, have contributed towards optimising project cost structures. In fact, planned capex on these projects has been slashed by an estimated 40%.

Cost Deflation To Benefit E&P Players
Monthly Average Day Rate Semi-Submersible Rig 1500-5000ft, 5000-8000ft & 8000ft WD, (USD)
Source: Bloomberg, BMI

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