The Gist: (1) Organic Finding & Development for oil-focused E&Ps rose to an 8-year high of $15/boe. Development costs are the long-term driver of oil prices. Bullish oil long-term. (2) The initial read on the supermajors is that Organic F&D is rising as well with both XOM & CVX up significantly in the year. (3) Upstream capex per boe, another metric for measuring the capital intensity cycle, is rising as well.
So let's jump into, with a chart on organic finding and development (F&D) costs for the oil-focused E&Ps.
The latest point is updated with 2023 10K’s showing F&D rose to an 8-yr high of about $15 per boe or +50% y/y.
Said another way, the industry is investing $15 per barrel of oil equivalent (oil, NGLs & natural Gas) to add to their reserves, without factoring in any impacts from acquisitions or price revisions.
The importance of tracking F&D costs, as discussed in last week's post (HERE), lies in the fact that development expenses influence oil prices in the long term. If the cost of producing an additional barrel is increasing, that additional cost will eventually reflect in the price, as illustrated below.
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