The global investment cycle will show the first signs of growth in 2017, since 2014, as confidence in the oil and gas sector will start to return, with exploration and production spend set to rise by 3% to $450-billion.

This, analysis firm Wood Mackenzie said on Wednesday, would also result in a doubling of final investment decisions (FIDs) compared with 2016.

Wood Mackenzie upstream oil and gas principal analyst Malcolm Dickson further noted that 2017 would demonstrate how efficient the oil and gas industry has become; showing projects in better shape all round.

Though a corner is being turned, production and exploration spend is still 40% below the heady days of 2014. At the forefront of the revival will be US tight oil, with costs expected to continue to fall in 2017, though only marginally.

Capital expenditure (capex) deflation has averaged 20% over the past two years. With service sector margins wafer thin, Wood Mackenzie believes there is now only room for small reductions and capital costs are expected to fall by an average of 3% to 7%.

In its ‘Global Upstream: 5 things to look for in 2017’ report, Wood Mackenzie further outlined that global investment would rise, reversing the two years of severe decline.

US tight oil, and the Permian basin, will lead the way, distinguished by low breakevens, scale and flexibility, it stated, adding that US Lower 48 spend is set to grow by 23%, to $61-billion, with upside if oil prices rise strongly and US independents are emboldened by a Donald Trump presidency.

Wood Mackenzie further predicted that the number of FIDs would rise to more than 20 in 2017, compared with nine in 2016, but pointed out that this was still “well short” of the 2010 to 2014 average of 40 a year. “But these are generally smaller, more efficient projects, and capex per barrel of oil equivalent averages just $7/bl, down from $17/bl for the 2014 projects,” it stated.

"Companies will get more bang for their buck as development incremental internal rates of return (IRR) will jump from 9% to 16%, comparing 2014 to 2017. This is in part a result of a shift in capital allocation away from complex mega projects towards smaller, incremental projects in the Canadian oil sands and deep-water,” said Dickson.

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"Nowhere is the mantra ‘doing more with less’ more evident than onshore US. There has been a dramatic increase in efficiency in the sector, exemplified by the drillers, who are managing to complete wells up to 30% quicker," he added.

Wood Mackenzie noted that, as the tight oil sector heated up further, the spectre of cost inflation still loomed in 2017; however, it believed that any increase in costs could be offset by further efficiency gains in earlier-life plays.

Further, the firm said that deep-water FIDs would be a leading indicator that the tide was turning.

Wood Mackenzie's global upstream outlook highlighted that projects slated for FID in 2017 were “largely looking good”, but the longer-term deep-water pipeline was more challenged. “Of the 40 larger pre-FID deep-water projects, around half fail to hit 15% IRR at $60/bl,” it stated.

Dickson added that the industry has selected the best projects to optimise and take forward. “In 2017, it will have to turn its attention towards optimising the next wave of developments to get them sanction-ready," he noted.