North American exploration and production (E&P) costs did not meaningfully pressure global oil prices in 2013, according to a Fitch Ratings study.Fitch based its conclusions on a sample of 31 companies' full-cycle costs. The study found that the full-cycle revenues required by the median North American E&P company rose just 1% year over year (1.4% annually since 2008). When taking into account changes in mix, full-cycle oil and gas prices declined about 1.1% and 1.4% on a one-year and five-year basis, respectively.

The biggest source of cost pressure for North American producers remains high finding, development and acquisition (FD&A) costs, followed by higher production costs. Fitch notes that efficiency gains in shale plays have helped keep overall cost increases in check.

Full-cycle costs for North American E&P companies have demonstrated a trend of cost moderation over the last few years. This suggests that much of the run-up in global oil prices can be attributed to non-fundamental factors - geopolitics, monetary policy, etc. - rather than rising unit costs. Shale has been a key factor in stabilizing U.S. costs, given the ongoing trend of efficiency gains in shale plays, as well as increased allocation of capex budgets to shale among independent E&Ps.

Fitch notes also that North American cost trends may not be fully representative of cost trends seen globally, given that shale development has not spread as rapidly outside North America. However, favorable cost trends in North America matched with rapidly growing production have had a moderating effect on world oil prices. Fitch expects this will continue to be the case given expected rapid growth of shale production.
Source: Fitch Ratings