RenCap study: oil sells at half of what it costs to produce

Today’s global price of oil is equivalent to about half the money spent on its production by the supermajors, the world’s largest oil and gas companies, according to a study by investment bank Renaissance Capital.

The current average price for Brent, West Texas Intermediate (WTI) and the OPEC basket of 13 crudes is just under $30 per barrel.

Every barrel put on the market between 2010 and 2019 by apparently the best-managed of the supermajors cost the latter a total of $58 to produce, Alexander Burgansky, RenCap’s head of oil and gas research, said in a report.

The sum comprised all production expenses, including capital expenditures (capex), operating expenses (opex), netback or exploration costs, expenditures to ensure capital returns, and production and income taxes.

Some of the supermajors – Chinese and Latin American – were spending $57 per barrel between 2014 and 2019 but this was not enough to replace reserves and generate free cash flow at the same time, Burgansky argued.

Capex and basic opex alone, inputs that would simply cover maintenance costs and would not include any other expenses, amount to between $30 and $35 per barrel, he said.

In an email interview with EmergingMarkets.me, Burgansky predicted there would eventually be insolvencies among oil companies if the price did not rise significantly but forecast that Brent would on average go up to $35 per barrel in the second, to $40 in the third and to $45 in the fourth quarter of 2020.

Sorry, comments are closed for this post.