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Upstream oil industry continuing on the road to recovery – Woodmac

11th July 2017

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – New data by advisory firm Wood Mackenzie (Woodmac) has shown that the number of upstream oil projects reaching final investment decision (FID) in 2017 could double to 25, compared with only 12 last year.

In its latest report ‘A big year for FIDs: 2017 marks a turning point’, Woodmac points out that during the first six months of 2017, the industry has already witnessed 15 project sanctions, which equates to about eight-billion barrels of oil equivalent of reserves, mostly in brownfield projects.

This is almost comparable to project sanctions in the whole of 2016, which saw 12 FIDs and 8.8-billion barrels of oil equivalent of reserves approved.

"These are positive signs that the upstream industry is continuing on the road to recovery and that the more competitive conventional projects are moving down the cost curve sufficiently to attract new investment," said Woodmac research director for Asia-Pacific upstream, Angus Rodger.

“Eleven of the 15 project sanctions year-to-date are either brownfield expansions on existing fields, satellite developments or subsea tiebacks. Not only are these projects less risky than greenfield developments, they also tend to be less capital-intensive and are quicker to bring on stream, offering a quicker payback and better returns on development dollars,” said Rodger.

“This is reflected in lower development capital expenditure (capex) per barrel and stronger project returns. For example, on average, project capex is down to $11/bl of oil equivalent versus $15/bl of oil equivalent in 2015, and internal rates of return at 15% in 2017 versus 11% in 2015,” he added.

Rodger said that another clear trend was that the majors dominate the FIDs scene, with eight of 15 project sanctions in 2017 operated by the majors.

Of the 35 mid-to-large projects sanctioned since the start of 2015, 19 were major-operated. This equals just under 14-billion barrels of oil equivalent of the 22-billion barrels of oil equivalent total of commercial reserves sanctioned.

Woodmac estimates that these projects will make up 1.6-million barrels of oil equivalent a day of net new production to the majors by 2024, which is around 6% of total output from the peer group.

Conversely, national oil companies (NOCs) have tightened their purse strings and have been noticeably inactive on new project investments over the 2015 to first half of 2017 period. Operating less than one-billion barrels of oil equivalent of the 22-billion barrels of oil equivalent total of sanctioned commercial reserves, NOCs need to be on the lookout for investment opportunities as many face significant production declines post-2020.

“The second half of 2017 could see another 11-billion barrels of oil equivalent of reserves hit FID, and again we expect strong activity from the majors. However, it is also important to note that last month ExxonMobil sanctioned the first phase of development on the 1.5-billion barrels of oil equivalent Liza oilfield [off the coast of Guyana]. This goes to show that it is not just about short-cycle investments; the best greenfield opportunities are also moving forward to commercialisation,” said Rodger.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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