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2017-01-11 19:00:00

OIL INVESTMENTS UP

OIL INVESTMENTS UP

FT -  Oil companies are preparing to ramp up spending this year as the recovery in crude prices gives them confidence to revive some of the projects postponed during the investment freeze of the past two years.

Brent crude has been trading at about $55 per barrel — double the 12-year low hit in early 2016 — after producer nations both inside and outside Opec, the oil producers' cartel, agreed last December to their first output cut for more than a decade.

This, coupled with deep cost cuts made by oil companies since prices crashed from more than $100 per barrel in 2014, has improved cash flow generation across the industry and made the economics of many prospective developments look more attractive.

"The industry has moved out of survival mode, through a phase of adaptation to lower prices and now it is beginning to think about renewed growth," says Malcolm Dickson, analyst at Wood Mackenzie, the energy consultancy.

Global capital spending by leading exploration and production companies will total $450bn in 2017, up 3 per cent compared to 2016 and ending two years of steep declines, according to Wood Mac forecasts published on Wednesday. Meanwhile, the number of final investment decisions by these 60 E&P companies — which range from large multinationals and independents to national oil groups — on new upstream projects will double to more than 20 in 2017, from nine last year.

Others have made similar projections. A survey of more than 100 E&P companies by Barclays analysts has predicted that their capital spending will rise by an average of 7 per cent this year. Rystad Energy, another energy research group, estimated that new offshore production capacity amounting to 15bn barrels of oil equivalent would be sanctioned in 2017, compared with 6bn last year.

"Companies can finally see a floor beneath oil prices and their [project] break-even points are coming down towards the same level," says Iain Reid, analyst at Macquarie.

There are 40 large upstream projects awaiting investment decisions by E & P companies, according to Wood Mac, and at least half of them are likely to secure approval in 2017.

Candidates include Total's Libra deepwater field in Brazil, and the French group's Absheron gas project in Azerbaijan.

Mozambique's Coral South gasfield is nearing a final investment decision from Eni, and ExxonMobil looks set to pull the trigger on its giant Liza oil discovery off the coast of Guyana. The US group announced last month that it had already awarded contracts for the design and engineering of the floating production platform to be used in the field.

However, while a big improvement on the past two years, E & P investment in 2017 will remain 40 per cent below the level in 2014, and the number of new project approvals will fall well short of the average 40 a year between 2010 and 2014, according to Wood Mac.

"We've bottomed out but I don't think we're off to the races," says Iain Armstrong, analyst at Brewin Dolphin. He notes the uncertainty over long-term demand for oil as the rise of electric vehicles and other low-carbon technologies threatens to accelerate the shift away from fossil fuels. This, together with shorter-term doubts about the durability of the Opec cuts, would deter E&P companies approving projects with break-even points much above $50 per barrel, he adds.

Chief executives at E&P groups have repeatedly promised shareholders that they will defend the industry's hefty dividend payouts — and their positions would be at risk if those pledges were breached. This is expected to ensure that capital discipline will remain a priority after the balance sheet strains of the past two years.

The five largest western oil groups together saw a cash outflow, after dividends and capital spending, of about $48bn last year, compared to a net inflow of $6bn in 2012. "These companies are planning to get back to being cash flow positive," says Steve Wood, analyst at Moody's. "They want to be careful and not lock in a capital budget based on oil at $55."

When companies do commit to investments, they are likely to be focused on the smaller, incremental projects that have been in favour for the past couple of years.

Analysts and industry executives expect the investment rebound to be strongest in US shale oil production, where the best areas — particularly in the Permian Basin of West Texas — offer some of the world's lowest — cost opportunities for new production.

Shale oil developments, with each well costing about $5m, are also much more flexible than multibillion-dollar projects that take years to complete. Activity can be ramped up and down in a matter of weeks to respond to market conditions.

Exxon said in a presentation last year that, looking ahead to its investment prospects for 2018 and beyond, it could add up to 1m barrels of oil equivalent in peak production from US shale reserves: more than its potential additional output from conventional resources, deep water and liquefied natural gas combined. Chevron has also stressed its opportunities in US shale.

Elsewhere in the world, investment would focus on the lowest-cost resources such as Brazil's so-called pre-salt deepwater fields, says Tom Ellacott, head of corporate research at Wood Mac.

Some companies are likely to be more aggressive than others. Total, for example, has signalled its readiness to step up investment after cutting costs faster than peers. BP, which last month approved the $9bn Mad Dog 2 project in the Gulf of Mexico, is also looking to rebuild after its retrenchment since the costly Deepwater Horizon oil spill in 2010. Royal Dutch Shell, in contrast, is expected to keep spending in check as it focuses on reducing debts after its £35bn acquisition of BG Group last year.

The common theme among all oil companies, says Mr Armstrong, will be determination to avoid a return to the wasteful spending of the boom years. "CEOs and top management are increasingly incentivised by return on invested capital and by that measure industry performance has been awful for a long time," he adds.

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Earlier:

INVESTMENTS: 

CHINA'S INVESTMENTS TO SOUTHEAST ASIA 

INDIA'S GAS INVESTMENT: $20 BLN 

OIL INVESTMENT: -$1.99 TLN + $630 BLN  

UNDERINVESTMENT OIL  

RUSSIAN OIL&GAS INVESTMENT 

BRAZIL SEEKS INVESTMENT 

SAUDI'S INVESTMENT: $334 BLN 

IRAQ RESTART INVESTMENT 

CHINESE - NIGERIAN AGREEMENTS: $80 BLN 

GLOBAL INVESTMENT DOWN $1 TLN

 

EXPLORATION: 

SHALE OIL COMPANIES UP  

U.S. SHALE DRILLERS UP 

UPSTREAM'S EARNINGS UP 

U.S. OIL BENEFITS 

UK'S OIL COLLAPSE 

OIL EXPLORATION & PRICES

 

PRICES: 

OIL PRICES: ABOVE $56 AFRESH 

OIL PRICES 2017: $58 

OPEC: IMPORTANT DECISION 

WORLD ECONOMY OPTIMISM 

ОГРАНИЧЕНИЕ ДОБЫЧИ НЕФТИ



 



 

 

 

 

Tags: OIL, PRICES, BRENT, WTI, INVESTMENT, EXPLORATION, PRODUCTION

Chronicle:

OIL INVESTMENTS UP
October, 16, 11:50:00

SAUDI ARAMCO IPO

Saudi Arabia is considering delaying the international portion of the giant initial public offering of its state oil company until at least 2019, according to people familiar with the situation, who said a domestic share sale in Riyadh could still happen next year.

OIL INVESTMENTS UP
October, 16, 11:45:00

SAUDI'S BANKS ARE BETTER

But we expect a rise in the sector's NPL ratio and muted credit demand in the second half of 2017 and 2018, reflecting the slowing economy. GDP growth slowed to 1.4% in 2016 from 3.4% in 2015 and we expect it to be below 1% in 2017 and 2018.

OIL INVESTMENTS UP
October, 16, 11:40:00

OPEC EXPECTATION

The Organization of Petroleum Exporting Countries and allies including Russia have been cutting oil production this year to bring fuel inventories in industrialized nations back in line with the five-year average.

OIL INVESTMENTS UP
October, 16, 11:35:00

JAPAN LNG INVESTMENT

The Japanese government will offer $10 billion to support firms bidding to build liquefied natural gas (LNG) infrastructure around Asia, the Nikkei business daily said on Monday.

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