Global Upstream Investment to Rise: Survey

Global upstream investment is to rise over the coming few years, according to a survey of the upstream industry by consultancy Wood Mackenzie, but the areas likely to see the most action are also the safest, it finds.

Mergers and acquisitions and near-field drilling are the low-hanging fruit as producers' optimism about crude prices pick up, it says, while other exploration work and anything deepwater remain further down their list of priorities and have to meet higher rates of return expectations.

LNG is another area of optimism, where the hurdle rate, as for conventionals, is below 14%; exploration and deepwater meanwhile require a rate of return close to 16%. WoodMac expects oil to remain at $50/barrel this year and next, although the survey shows more optimism.

Author Martin Kelly told NGW that there appears to be cautious optimism and the signs are that companies are looking at more capital expenditure and mergers and acquisitions than recently, although he would not be drawn on whether this could be enough to stave off a supply squeeze around 2020, as the International Energy Agency is warning of after two – possibly three, depending on how this year turns out – years of historically low investment. 

Rising demand, a further shrinkage of storage stocks, natural field depletions and the possibility of an extension of the present producer countries' agreement to limit production, could all contribute to a perceived undersupply, with marginal barrels being brought on stream at higher cost than today's Dated Brent price.

The survey did not differentiate between oil and gas. For example BP is planning to produce more gas than oil in the coming years, reversing the ratio of the last few years; while Shell's purchase of BG has also increased its share of gas output. Many of the majors are also investing in solar and other renewables: Statoil for instance is building wind farms in the North Sea.

Wood Mackenzie asked its client base to share their thoughts on a number of key themes, including: What are the expectations around the oil price? Will investment in M&A and capital spend rise? What is the industry's priority for 2017? What is the best long-term growth option?

William Powell