EDINBURGH, UK – Oil and gas companies head into 2018 in their best financial shape since oil prices started falling, claims consultant Wood Mackenzie in its 2018 Upstream Outlook.
SVP Tom Ellacott said: “Now that the belt-tightening is done, companies are looking to deliver profitable growth and build for the future.
“We also expect to see signs that the investment cycle is starting to turn and the sector has reset itself to operate at lower commodity prices.”
Angus Rodger, upstream research director, added: “The downturn meant that close to $1 trillion was taken out of company spending from 2015 to 2020. But we believe the big cuts are over.
“Wood Mackenzie expects global capital expenditure to grow slightly in 2018 to a total of $400 billion.”
LNG spending is set to fall by around 40% next year to $16 billion, as big projects are completed in Australia and Russia, but spending on deepwater projects is set to rise by 15%, following a three-year decline in this sector.
Wood Mackenzie also anticipates a third successive increase in project sanctions following the low of 2015, up from just over 20 in 2017 to 25 in 2018. This is in part due to operators looking to take advantage of locking into current low equipment/service costs.
“The rise in project sanctions will be a clear sign that new projects can work in a low-price environment,” said Ellacott. “Oil and gas companies will continue to adapt portfolios to perform at high and low prices and also to provide a platform for longer-term energy transition.
“Optimizing the core business, controlling costs, and employing digital technology like predictive analytics will all play a part. We expect companies to continue to develop high-value, low-cost oil.
“Building exposure to gas will also be a core strategic objective for most larger companies as they transition towards low-carbon portfolios.”
Wood Mackenzie expectsIran and the United Arab Emirates to award at least 10 Bboe of discovered resources for development next year, with growing interest also in Latin America. In Brazil, around 10 Bboe of deepwater resources could be auctioned in 2018.
Ellacott said: “Looking at the upstream sector as a whole, we expect more activity from the Asian NOCs as they tackle structural production declines…
“The majors will continue to cherry-pick opportunities, building on the great progress already made in repositioning portfolios for lower prices.”