Oil prices will likely “remain in an upcycle” — but that will bring higher costs which will heap pressure on  juniors still in the exploration phase.

That’s the view of ratings agency S&P Global in a new report out this week.

For producers like Triangle Energy (ASX:TEG) and Buru Energy (ASX:BRU), it’s less of a problem because they’ll be selling higher priced oil.

For explorers without revenue, it could spell trouble.

That means investors heading back into the oil sector after years of downturn will need to take care when choosing stocks.

>> Scroll down for a table of ASX-listed oil juniors

Key Petroleum managing director Kane Marshall says costs haven’t started rising just yet, but he expects that beaten up oil services contractors will start putting up prices.

“I’m not sure that oil services costs have risen [yet], but naturally you’d expect that struggling oilfields services contractors will start to jack up prices and try to make some money,” Mr Marshall told Stockhead.

“The problem we faced with Australia is we’ve had fairly nasty protracted downturn with not a lot of investment in the sector. You see that in Western Australia, where there’s been a lot of contractors who’ve closed their doors.”

New competition, likely to come in the Cooper Basin in Queensland first, could temper price rises. But that will depend on when (or whether) investors start putting money into the oil sector again.

Meantime, increasing costs could cause a shake-out among oil explorers who don’t have the ready cash to survive.

Here’s how ASX-listed oil juniors have fared over the past year:

ASX code Oil junior One-year price change Price May 23 (intraday) Market Cap
EEG EMPIRE ENERGY 3.5 0.036 45.5M
BYE BYRON ENERGY 2.45 0.345 232.9M
LKO LAKES OIL 2 0.003 82.9M
REY REY RESOURCES 1.68292682927 0.22 46.7M
HZN HORIZON 1.54545454545 0.14 169.3M
SEH SINO GAS 1.52873563218 0.22 466.1M
HE8 HELIOS ENERGY 1.45833333333 0.059 87.7M
FDM FREEDOM 1.4347826087 0.28 254.9M
OEL OTTO ENERGY 1.36666666667 0.071 107.2M
BRU BURU ENERGY 1.3602484472 0.38 166.3M
BUL BLUE ENERGY 1.32142857143 0.13 150.1M
COI COMET RIDGE 1.29032258065 0.355 240.2M
TEG TRIANGLE ENERGY 1.11111111111 0.095 20.7M
BAS BASS OIL 1 0.004 10.4M
PCL PANCONTINENTAL 1 0.004 21.0M
EXR ELIXIR PETROLEUM 0.972972972973 0.073 16.2M
ATS AUSTRALIS 0.760869565217 0.405 362.0M
CVN CARNARVON PETROL 0.707317073171 0.14 161.4M
PVE PO VALLEY ENERGY 0.7 0.034 20.2M
TOU TLOU ENERGY 0.52380952381 0.16 54.4M
BRK BROOKSIDE ENERGY 0.444444444444 0.013 12.8M
MEL METGASCO 0.428571428571 0.06 23.9M
TDO 3D OIL 0.355555555556 0.061 15.4M
EOR ENHANCED 0.333333333333 0.008 7.9M
PVD PURA VIDA ENERGY (suspended) 0.307692307692 0.051 --
NGY NUENERGY GAS 0.294117647059 0.044 65.2M
AVD ANTILLES 0.235294117647 0.021 3.4M
GBP GLOBAL PETROLEUM 0.2 0.03 6.7M
IPB IPB PETROLEUM 0.157894736842 0.022 3.4M
KEY KEY PETROLEUM 0.142857142857 0.008 10.8M
ELK ELK PETROLEUM 0.119402985075 0.075 111.6M
TAP TAP OIL 0.117647058824 0.076 31.9M
CUE CUE ENERGY 0.105263157895 0.063 43.3M
RLE REAL ENERGY 0.1 0.099 26.8M
AJQ ARMOUR ENERGY 0.0975609756098 0.09 36.5M
GGX GAS2GRID 0 0.003 3.4M
EMP EMPEROR ENERGY 0 0.003 2.7M
JKA JACKA RESOURCES 0 0.002 921.7k
RAW RAWSON OIL 0 0.044 4.6M
SEA SUNDANCE ENERGY 0 0.072 501.3M
WBE WHITEBARK ENERGY 0 0.007 6.9M
COE COOPER ENERGY -0.0053050397878 0.375 592.4M
CTP CENTRAL PETROL -0.00584795321637 0.17 120.2M
AOW AMERICAN PATRIOT -0.037037037037 0.026 6.9M
GAS STATE GAS (*listed Oct 2017) -0.05 0.19 25.6M
MPO MOLOPO ENERGY (suspended) -0.0666666666667 0.14 --
ICN ICON ENERGY -0.0769230769231 0.024 14.3M
STX STRIKE ENERGY -0.0875 0.073 81.0M
ENB ENEABBA GAS -0.125 0.007 5.2M
88E 88 ENERGY -0.145833333333 0.041 233.4M
AOK AUSTEX OIL (suspended) -0.190476190476 0.017 --
EGO EMPIRE OIL & GAS (suspended) -0.25 0.12 --
PSA PETSEC ENERGY -0.266666666667 0.11 36.1M
BUY BOUNTY OIL & GAS -0.285714285714 0.005 5.7M
KPL KINA PETROLEUM -0.29 0.071 27.2M
MAY MELBANA ENERGY -0.315789473684 0.013 16.7M
TMK TAMASKA OIL & GAS -0.333333333333 0.002 5.9M
ABL ABILENE -0.333333333333 0.006 2.4M
SGC SACGASCO -0.338461538462 0.043 12.8M
OEX OILEX -0.4 0.003 6.0M
RRS RANGE RESOURCES -0.428571428571 0.004 30.4M
TPD TALON PETROLEUM -0.428571428571 0.004 4.1M
WEL WINCHESTER -0.4375 0.045 12.8M
SSN SAMSON -0.5 0.002 4.9M
FPL FREMONT -0.7 0.009 6.1M
WOF WOLF PETROLEUM -0.71875 0.009 6.2M
TNP TRIPLE ENERGY -0.75 0.06 2.6M
JPR JUPITER ENERGY -0.784 0.054 8.3M

Prices and acquisitions

S&P Global believes producers in Australia and Asia aren’t likely to squander their wealth because memories of the last downturn — which began in such dramatic fashion in 2014 — are still fresh.

S&P has raised its assumptions for the Brent oil price benchmark although they remain below spot prices which last week breached $US80 a barrel.

S&P expects Brent to average $US65 for the rest of 2018 and $US60 next year — up from its earlier forecast of $60 this year and $55 next year.

“Oil prices remain in an upcycle, generating more free cash flow for many Asia-Pacific energy companies,” S&P said in the report, Asia-Pacific Oil And Gas Companies: Will High Oil Prices Go To Their Heads?

“At the same time, spending is sloping downwards as major investment projects of recent years wind down.”

Acquisitions will be a key area for companies when they have ready cash.

S&P believes merger and acquisition appetites are low for now, but could grow if oil prices remain high.

Oil merger and acquisition activity in Australia has been mixed in the last year.

AWE was successfully taken over by Japan’s Mitsui in May.

But Santos (ASX:STO) has thrown a spanner in the works with Harbour Energy’s $14.4 billion offer, after rejecting it as too low and too high risk.

At the smaller end of town, Aurora failed in its bid last year to take over struggling Molopo Energy (ASX:MPO).