Analyst finds upstream companies cautiously optimistic about outlook for 2017

Wood Mackenzie’s analysis of the 2017 guidance issued during the 4Q reporting season indicates that approaches to capex and production targets this year depend, in large part, on a company’s operational focus.

Year-over-year change in upstream E&D capex and production
Year-over-year change in upstream E&D capex and production

Offshore staff

EDINBURGH, UK, HOUSTON, and SINGAPORE – Upstream companies may be quietly optimistic about the outlook for 2017, but many remain cautious. Wood Mackenzie’s analysis of the 2017 guidance issued during the 4Q reporting season indicates that approaches to capex and production targets this year depend, in large part, on a company’s operational focus. 

Producers with exposure to the US Lower 48, and particularly those active in the Permian basin tight oil play, are loosening their purse strings and setting ambitious growth targets. But, WoodMac noted, larger operators that are exiting current capital intensive phase of investment, such asTotal and Chevron, will see spend continue to trend down.

WoodMac expects to see upstream investment increase this year for 99 of the 119 companies that have so far announced their budgets, a reflection of the severe cuts made in 2016. Those that are cutting capex are among the largest in the industry.

In aggregate, the 119 companies covered by the report plan to spend $25 billion more in 2017, a year-on-year increase of 11%. This figure is subject to revision, the analyst pointed out, as more companies announce their spending plans.

Those companies focused on the US have booked the largest increase in planned spending, with budgets set to rise 60% year-on-year, accounting for $15 billion of additional investment, says the analyst. Among those companies that will increase spend are tight-oil specialists Pioneer and EOG, underlining the attractiveness of the Lower 48’s shale plays, even at current prices.

Bigger budgets are also expected inCanada, Latin America, and Russia.  

For many companies, 2017 will be about focusing on returning to growth. The 98 companies that have announced production guidance for the year expect to produce a combined 1 MMboe/d more than in 2016, year-on-year growth of about 5%.

Some of that growth will come from acquisitions. The US-focused group of companies account for 800,000 boe/d of the total, a 15% year-on-year increase. Internationally-focused companies, however, have forecast overall production declines this year.
03/16/2017

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