Oil services costs expected to rise in 2017

12 December 2016

Saudi Energy Minister and Aramco chairman says there will be higher demand for projects and drilling

Oil field services and engineering, procurement and construction (EPC) costs are expected to increase next year as the energy industry finds a new equilibrium after two years of low oil prices. 

“The cost of the service industry is also going to pick up in 2017. We [oil producers] have seen extreme drops in [revenues in] 2015 and 2016, but the service industry has also been hurt and going forward we are already seeing the signal that costs are going up in response to higher demand for projects and drilling,” said Khalid al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, speaking at a press conference in Vienna on 10 December after concluding the framework agreement for Opec and non-Opec countries to cut oil production.

Al-Falih is also the chairman of Saudi Aramco.

Non-Opec oil producers agreed with Opec to cut production by about 600,000 barrels a-day in January. The agreement, which is the first between Opec and non-Opec nations in 15 years, follows the deal announced on 30 November by Opec members to cut production by 1.2 b/d from 1 January 2017, and is expected to cause a modest rise in oil prices during 2017 and help stimulate investment in new production capacity. 

The agreement was widely expected and Russia had already agreed to cut production by 300,000 b/d. The new Opec ceiling will 32.5m b/d from January, and will be in place for six months. The majority of Opec countries agreed to cut production by about 4.5 per cent. In terms of barrels a-day, Saudi Arabia will make the largest cuts with a 486,000 b/d reduction in output.

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