AFTER almost three years of reduced capital expenditure and exploration and development activity, a number of leading global oil and gas sector analysts are now tipping 2017 to be the come-back year for the industry.
With OPEC and a number of major oil producing countries recently confirming a pact to reduce their oil production levels, oil price watchers are growing more confident that crude could hit the US$60 a barrel a mark by mid-year – a price level t that many feel is the tipping point for a capital expenditure turn-around.
Amongst those who are feeling bullish about the oil and gas sector is industry advisory specialist Wood Mackenzie which recently forecast that the investment cycle will show the first signs of growth in 2017 since 2014 and final investment decisions (FIDs) will double, compared with 2016.
According to Wood Mackenzie’s global upstream outlook for 2017, confidence will start to return to the sector, with exploration and production spend set to rise by 3% to US$450 billion.
Malcolm Dickson, a principal analyst for Upstream Oil and Gas at Wood Mackenzie, says 2017 will demonstrate how efficient the oil and gas industry has become; showing projects in better shape all round.
“The global investment cycle will show the first signs of growth in 2017, bringing the crushing two-year investment slump to a close,” said Mr Dickson.
Wood Mackenzie predicts the number of FIDs will rise to more than 20 in 2017, compared with nine in 2016. This is still well short of the 2010-2014 average of 40 a year. But these are generally smaller, more efficient projects, and capex per barrel of oil equivalent (boe) averages just US$7 per barrel, down from US$17 per barrel for the 2014 projects.
“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,” Mr Dickson said.
Tom Ellacott, senior vice president of corporate analysis research at Wood Mackenzie, said that most oil and gas companies will start 2017 on a firmer footing, having halved cash flow break-evens to survive the past two years. Further evidence of a cautious, U-shaped recovery in investment should emerge.
“Overall 2017 will be a year of stability and opportunity for oil and gas companies in positions of financial strength. More players will look at opportunities to adapt and grow their portfolios,” said Mr Ellacott.
Meanwhile, Deloitte’s “2016 Oil and Gas Industry Survey” of oil and gas professionals found that more than half (59 %) of oil and gas professionals believe the recovery already has begun or will begin in 2017.
Deloitte said that while the current state of the market still leaves cost-containment initiatives a priority for oil and gas companies, executives nonetheless showed renewed confidence in an industry recovery.
Maintenance activity tipped to surge
Douglas-Westwood has also forecast a major spending surge in global oil and gas maintenance expenditure.
The company said a backlog of maintenance activity and and the growing age and degradation of existing asset oil and gas infrastructure, will see global maintenance expenditure increasing from US$81 billion in 2017 to US$95 billion in 2021 for the world’s global offshore platform population of approximately 8,700 fixed and floating assets.
Regionally, Asia’s historical share of 22% of total expenditure is anticipated to grow to 24% by 2021, due to an increase in Fabric Maintenance demand, whilst North America’s share is projected to experience a contraction from 23% historically to 20% over the forecast, associated with a reduced appetite for value-added maintenance services.