HOUSTON -- High commodity prices have allowed the oil and gas industry to develop resources that would have been far too costly 15 years ago. But despite accusations of “obscene profits” from the uneducated public, many companies are finding their return on capital employed (ROCE) shrinking despite truly amazing discoveries. In addition to the increased complexity of modern projects, service and supply costs have escalated, squeezing margins and endangering long term investment.

This situation was the topic of the “E&P Strategies: New Challenges, New Business Models” panel at the recent CERAWeek event. Two operators and two service companies shared their views on the challenges and possible solutions.

Yves-Louis Darricarrère , president, upstream for Total SA (NYSE: TOT), outlined several challenges, among them a growing population and the emergence of developing countries. These factors will push worldwide oil demand to 55 million barrels a day (MMbbl/d) by 2029. Natural gas demand is expected to grow even more.

“The resources to fulfill this demand do exist,” Darricarrère said. “The industry has shown its ability to unlock shale oil and gas and has demonstrated that frontier exploration brings significant discoveries.”

“The major question is whether or not we’ll be able to develop these resources at the right pace to meet the demand.”

Other challenges include societal and governmental expectations in terms of safety, environmental impact and social responsibility, he said. While the industry has proven itself up to these challenges, it also will be contending with larger, more difficult projects. And costs continue to rise.

“Costs to develop have increased dramatically since 2005,” he said, “escalating to the point where sustainability is at stake.” He added that Total’s ROCE dropped from 16% in 2012 to 13% in 2013. “We wonder if our investment risks are adequately rewarded,” he said.

Lars Christian Bacher , executive vice president, development and production, international for Statoil ASA (NYSE: STO), had similar concerns. The company is expanding its footprint in North America, employing 2,000 people. “[International oil companies] are struggling to deliver returns,” Bacher said. “Increasing capital intensity is an issue that is preoccupying the industry and investors these days. I believe we can all agree that our industry has not had the best track record when it comes to cost and capital discipline.”

He noted that Statoil’s total oil and gas production has declined for 12 consecutive quarters, while capital deployed has doubled. “Returns are