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2019 edition

Credits

Editorial

Head of Aspermont Research & Intelligence Chris Cann E-mail: chris.cann@mining-journal.com

Publishing Director Simon Tarmo E-mail: simon.tarmo@aspermont.com

ENB Editor Helen Clark E-mail: helen.clark@aspermont.com

ENB Research Lead Jeanette Roberts

Report Development James Bowen

Editorial enquiries

Tel: +61 8 6263 9133 E-mail: editorial@aspermont.com

Design

Production delivery (UK) Sharon Evans, Woody Phillips Group digital & creative director Abisola Obasanya Senior creative producer Laurence Meyer

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ENB Sales Manager Leon Grey Tel: +61 (08) 6263 9134 E-mail: leon.grey@aspermont.com

Subscriptions and circulation enquiries

Subscription Sales Manager Australia Tori McNally Tel: +61 (08) 6263 9100 E-mail: tori.mcnally@aspermont.com

Senior global subscriptions manager Emily Roberts Tel: +61 (0) 432 245 404 Email: emily.roberts@@aspermont.com

www.aspermont.comwww.energynewsbulletin.net

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Chairman Andrew Kent Managing director Alex Kent Group chief operating officer Ajit Patel Group chief financial officer Nishil Khimasia Chief commercial officer Matt Smith

© Aspermont Media 2019

Aspermont Media, publisher and owner of the ENB Cost Report (‘the publisher’) and each of its directors, officers, employees, advisers and agents and related entities do not make any warranty whatsoever as to the accuracy or reliability of any information, estimates, opinions, conclusions or recommendations contained in this publication and, to the maximum extent permitted by law, the publisher disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any person or entity through relying on anything contained in, or omitted from, this publication whether as a result of negligence on the part of the publisher or not. Reliance should not be placed on the contents of this publication in making a commercial or other decision and all persons are advised to seek independent professional advice in this regard.

EXECUTIVE SUMMARY 2

FOREWORD 2

EXECUTIVE SUMMARY 4

1 CAPEX & OPEX 7

2 LABOUR 15

3 TECHNOLOGY 19

Contents

In the full report

For the full report, visit www.energynewsbulletin.net/ecr2019

AU$ 295

2

Executive summary

2019 edition

The recovery in the Australian oil and gas industry since the downturn of 2014-17 appears to have staying power. This is one of the major takeaways from a survey of expected future investment involving members of the country’s upstream sector. A key determinant of this staying power, and an issue upon which the survey sought to shed light, is the degree to which industry members can manage costs as they aim to capitalise on new market opportunities. Results from respondents presented and analysed in this report certainly paint a picture of growing confidence underpinning plans for at least the next 12 months. Yet they also serve to remind of industry members’ needs to adequately assess, and appropriately respond to, the size and nature of opportunities and challenges to come.

Among the most encouraging of the survey findings was that close to 80% of respondents expected their company to sanction at least one new project in the next 12 months. There were also similarly impressive results around the number of companies expecting to sanction a project in the next five years and those who are currently sizing up multi-project pipelines in both the short- and medium-term.

A wide range of factors both foreseeable and unforeseeable will naturally prevent many of the envisioned projects from being realised. Yet the level of optimism which such results represents is notable in and of itself. It is in stark contrast with industry sentiment that was most prevalent just two to three years ago, when oil prices were hovering in the US$30-$40 per barrel range and positive developments including a spike in Chinese natural gas demand had yet to alleviate fears of a major supply glut as new projects came online in Australia

and beyond in the critically important export LNG sector.

Survey respondents also identified those factors most supporting their expectations around new project development. Their responses suggested industry members are placing a high degree of faith in current favourable trends continuing for some time. Given the multi-year periods involved in getting new projects up and running—and the commensurate lag facing providers of equipment, technology and services to the sector—most expectations may be geared towards a widely predicted tightening of supply starting in around 2023.

There is good reason to attach significant value to the results of the survey analysed below as it concerns industry ability to respond to future opportunities, and challenges around cost in particular. The respondents represented the full

Image: iStock.com/3dmentat

Executive summary

Professional services: 7.79%

Support services: 5.19%

Logistics: 2.59%

PR and Media: 3.89%

Technology: 6.49%

Exploration: 14.29%

Other: 6.51%

Energy Production: 24.68%

Engineering: 6.49%

Consulting: 22.08%

Which of the below best describes the category of your company?

3

Executive summary

2019 edition

breadth of the upstream oil and gas sector. More than 40% of this total came from the exploration and production sector, which is responsible for driving investment activity across the entire industry and has the greatest exposure to, and subsequent awareness of, cost issues. The production side constituted the largest proportion of this, providing close to a quarter of overall survey responses. Outside production and exploration, the next largest contributing group came from the consulting sector (representing 22% of the total). The remaining respondents were spread across engineering, professional services, support services, technology, logistics and other sectors.

Adding to the informative and authoritative nature of the data produced is the fact that respondents were predominantly employed in key decision-making roles within their organisations. Close to three-quarters came from roles at management level or above. The vast majority were in turn in either senior management or board/C-suite positions, which together represented more than 60% of overall responses.

The survey results have below been broken into four broad cost-related categories for assessment: capital expenditure (capex), operational expenditure (opex), labour and technology. Many trends identified within these categories are broadly consistent with the publicly stated priorities of industry members and also appear to heed lessons around cost overruns and other challenges which have arisen in past periods of strong industry activity. There are, however, also a number of findings which appear to defy logical expectations. These include the rather limited impact which factors such as regulatory uncertainty and concern for social licence are likely to have on future project

decisions, as well as the relative lack of industry concern for prioritising outcomes such as implementation of automation.

Responses such as these suggest that participants were employing a degree of honesty that is not always evident in scripted pronouncements around business decision-making. Other unexpected responses, conversely, suggest a tendency of some respondents towards somewhat overly optimistic expectations of future activity. There is thus some apparent need for further analysis of findings, as suggested at several points below. It will also be worthwhile to assess whether the expectations around cost, and associated levels of confidence, suggested by survey responses are justified by monitoring related activity in coming years.

The suggestion of a quickly recovering industry simultaneously highlights some of the very real risks of repeating the cost and other pressures which characterised much of the period before the industry downturn. Data pointing to future investment intentions might be equally used to inform decisions by business and other stakeholders to help alleviate future obstacles. Much of the optimism captured in the survey responses will at the same time be challenged by developments in the market and elsewhere in and beyond the next 12 months. For now, however, the survey results serve mostly to highlight the marked improvement in industry sentiment in the space of just two to three years.

Employee: 15.58%

Graduate: 1.30%

Management: 12.99%

Other: 6.49%

Senior Management: 32.47%

Board / C-suite: 31.17%

Which of the below best describes your position?

A number of findings which appear to defy logical expectations

4

Executive summary

2019 edition

Editor’s comment

Welcome to the first Energy News Bulletin research report, part of an expanded offering to our subscribers and the wider industry.

Our new research department aims to delve deeper into the issues we explore daily at ENB: costs, future outlooks, exploration and production plans and the importance of regulatory certainty and ongoing issues around social license to operate, as well as the uptake of new technology to streamline operations and bring down expenditure.

ENB has closely followed the oil price downturn of several years ago and the subsequent recovery, reporting on not just the layoffs or the halt in exploration but also the new, leaner methods embraced by oilers and the wider industry as it sought to rebuild itself through the middle of this decade.

What our survey for this report tells us is that there is hope and industry does seem to be feeling bullish overall, planning on expanding capital expenditure and operational expenditure, and will sanction new projects in the next five years.

Climate worries and activist concerns, along with a tightening of legislation in some jurisdictions, have worried industry over recent years, but what this survey shows is that despite worries about social license to operate and regulatory problems it hasn’t deterred plans to invest in new projects.

In fact, of five factors ranging from cost of capital, project execution, market confidence , regulatory uncertainty and social license, the latter two scored the lowest. Thus, despite repeated calls from the big end of town for policy certainty, it seems overall industry is simply hoping to conduct business as usual.

The latter is just a taste of how this new series of reports can go beyond ENB’s daily headlines and look at the energy sector in more detail and on longer timescales.

We hope you enjoy our inaugural ENB research report and we look forward to providing you with more industry insights in the future.

Helen Clark, ENB Editor

Aims and methodology

The inaugural Cost Report marks the first in a new series of Energy News Bulletin (ENB) research reports covering the most important aspects of the energy sector in the Asia-Pacific region.

The results and analysis presented in this report are based off the ENB Cost Survey, which was distributed to the entire ENB readership base over the course of February and March 2019.

The survey received hundreds of responses from a wide range of industry participants, primarily from the senior management ranks of the sector, providing an ample set of results that have allowed the ENB editorial team, together with research lead Jeanette Roberts, to develop an informative and thought-provoking report that adds significant value to ENB’s subscription offering.

To be repeated on an annual basis, the ENB Cost Report is set to become a key reference for the sector, particularly as trends and contrasts emerge in future years.

Highlight the marked improvement in industry sentiment

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This industry-wide report by EnergyNewsBulletin.net (ENB) aims to understand current cost levels across the energy industry, how rapidly the sector will recover from its recent downturn and the likelihood of costs increasing again.

The report presents industry sentiment across CAPEX, OPEX, labour and technology, and likely challenges and barriers.

The report can be used to understand future industry plans, project pipelines, committed and probable investment, and issues likely to delay

projects and investment. It will provide a basis for developing business plans, financial forecasts, investment evaluation and workforce planning.

The research is unique in that it surveys the full range of industry stakeholders such as operators, service companies, consultants and contractors.

EnergyNewsBulletin.net is Asia-Pacific’s most comprehensive source of daily energy news, providing unparalleled insight into the energy value chain sector through breaking news, expert commentary and researched features.

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Cover design: Laurence Meyer

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