Latin American Oil & Gas Maintains Low Half Cycle Costs Amid Higher Oil Prices, Says Fitch Ratings

According to ratings firm Fitch, Half-cycle costs for Latin American oil and gas companies increased only slightly in 2018 by 3 percent, versus an 11 percent increase the prior year, according to a new  report the firm issued.

“The 2018 increase was caused by higher lifting and selling, general, and administrative costs, partially offset by interest expenses. This trend is negligible compared with the recovery of global oil prices in 2018 of 27.6 percent year over year,” said Lucas Aristizabal.

Link to Fitch Ratings’ Report(s): Latin American Oil & Gas Netback Peer Comparison

Half-cycle, or periodic costs, remained below market prices for both integrated and independent issuers. Weighted average liquids realization prices during 2018 stood at approximately $73.20 per barrel (bbl), compared with $60.20/bbl in 2017. Half-cycle costs were about $22.50/barrels of oil equivalent (boe) in 2018 from $21.80/boe in 2017.

Profitability improved by 50 percent in 2018 to $40.25/bbl.

Fitch expects Latin American oil and gas production to be stable or decline marginally over the short to medium term, as expected production declines in Mexico and Venezuela should marginally offset expected production increases in Brazil. Fitch expects Colombia’s oil and gas production to be relatively stable, while Argentina might find it challenging to increase output.

All vertically integrated oil and gas companies in Latin America, all of which are National Oil Companies (NOCs), benefited from vertical integration during 2018.

The full report, “Latin American Oil & Gas Netback Peer Comparison” is available at www.fitchratings.com.