HOUSTON — Rising labor costs are challenging oil companies, even amid an era of oil prices around $100 a barrel, Chevron’s CEO said Tuesday.
Labor and capital costs have more than doubled in the last 10 years, creating a “new reality” for energy producers and consumers, Chevron CEO John Watson said at the IHS Energy CERAWeek conference at the Hilton Americas in downtown Houston.
“That new reality for our industry is that costs have caught up to revenues for many classes of projects,” Watson said.
He argued that rising labor costs have forced oil companies to look for ways to cut other expenses in order to boost the profitability of projects. Those costs are now built into oil prices.
“Essentially, for a company like mine and many others, $100 a barrel is becoming the new $20 in our business,” Watson said.
Among the rising costs have been those for offshore development, which now reaches into waters that are deeper and more obscure than were possible a decade ago.
“If you look at the market for offshore rigs, costs have gone up more than five-fold in the last 10 years,” Watson said.
The result of higher labor costs will mean higher energy prices, Watson said.
“If $100 is the new $20, consumers will pay more for oil,” he said.
Watson also touted a court ruling Tuesday related to claims of environmental damages in Ecuador.
The U.S. District Court for the Southern District of New York ruled that a $9.5 billion judgement against Chevron made by courts in Ecuador was given as a result of fraud.
“This ruling is a resounding victory for Chevron and our stockholders,” Watson said. “It confirms that the Ecuadorian judgement against Chevron is a fraud and the product of a criminal enterprise.”
“Having a judgement like this from a reputable court in the United States will certainly be helpful in preventing enforcement actions elsewhere,” Watson added.