Life is full of paradoxes. Making the right decision often takes good judgment based on experience, but that experience might have been gained by having made several bad ones, for example.

Recently I’ve seen many comments and opinions related to a new study by analyst Wood Mackenzie (WoodMac) that among many insights flagged the falling number of major projects approved annually over the past decade and the undeniable trend that U.S. shale is leading the way in low-cost production.

But what was particularly interesting was how the company’s detailed analysis was quickly grasped and pushed out in a more alarming style by the majority of media outlets and industry observers.

One overall message kept recurring—the number of large projects (meaning those with multibillion-dollar megaspending) is falling. This, we were told in no uncertain terms by various commentators, was a bad thing. Between 2007 and 2013 there were up to 40 large projects approved annually. But in 2015 there were eight, and this year perhaps 10.

Perhaps this seems too obvious, but probably the biggest reason the industry is going through challenging times is because it overspent on such projects, accepting development costs that were totally nonviable if the oil price fell.

The past year-and-a-half have seen the upstream sector carry out major surgery to survive while—with increasing success—addressing and solving those unacceptable project costs. WoodMac pointed out, for example, that since 2014 costs have fallen 10% to 12% in the global oil industry, led by the super-responsive U.S. shale industry, where costs have dropped on average between 30% and 40%.

The analyst added that 70% of new drilling in U.S. tight oil plays and prefinal investment decision conventional projects are now considered commercial at less than $60/bbl, but that still means the oil price needs to rise further or, more likely, that costs need to keep falling.

Only a few giant (and very expensive) projects that have lifespans of several decades will go ahead in the meantime, such as Chevron’s recent decision to proceed with its $37 billion 260,000-bbl/d expansion of the producing Tengiz Field in Kazakhstan.

The fact that there are fewer $10 billion or $20 billion (or more) projects on the “biggest spend” list of various analysts is a good thing. Such lists for too long contained inappropriate projects whose owners should never have allowed such poor control of spending to take place.

Some of the most successful companies in the coming years are likely to be those whose names we see least on the “most expensive projects” list. Less can be more...

Contact the author, Mark Thomas, as mthomas@hartenergy.com.