‘Oil and gas exploration costs to fall 33 per cent by 2016’

Exploration costs to fall 33 per cent by 2016 Efforts to address cost inflation are expected to cushion the blow of exploration budget cuts. (Image source: Demosh/Flickr)Oil and gas drilling could return to 2014 levels by next year, according to energy research group Wood Mackenzie

The firm said that despite oil and gas companies slashing their exploration budgets by an average of 30 per cent as the industry adjusts to lower oil prices, efforts to address cost inflation will largely cushion the blow.

In its report Upstream cost deflation: how much could costs of exploration fall? Wood Mackenzie revealed that exploration deflation will average 33 per cent by 2016.

The deflation would be comprised of a 19 per cent fall in like-for-like costs, a five per cent saving from the simplification of activities, a further five per cent saving from efficiency improvements and a final four per cent from the strength of the US dollar.

Dr Andrew Latham, vice-president for exploration research at Wood Mackenzie, said that the savings would take time to come into effect, and would probably not be felt until next year.

“We expect the full benefit during 2016, unless oil prices recover quickly.”

He added that deflation at this rate could allow any companies that hold spending flat into 2016 to fund 50 per cent more exploration versus 2014. “Even those with cuts of around the average 30 per cent may see their 2016 activity bounce back to 2014 levels,” Latham concluded.

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