Oil, Gas Investment to Grow in 2017 for First Time since Price Crash
The oil and gas investment cycle will show the first signs of growth in 2017 since the oil price crash in 2014 and new projects in the upstream industry will double compared to 2016, according to a new report from Wood Mackenzie.
"2017 will demonstrate how efficient the oil and gas industry has become, showing projects in better shape all round,” Malcolm Dickson, a principal analyst for Upstream Oil and Gas for Wood Mackenzie, said.
According to Wood Mackenzie's global upstream outlook for 2017, exploration and production spend is set to rise by 3 percent to $450 billion.
“This is still 40 percent below the heady days of 2014 … but for all the pain of the downturn a leaner industry is starting to emerge,” Wood Mackenzie said in a company statement.
The number of final investment decisions (FID) will rise to more than 20 in 2017, compared with nine in 2016, Wood Mackenzie reported.
“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 averages just $7 per barrel, down from $17 per barrel for the 2014 projects,” a Wood Mackenzie spokesperson said.
The impending growth is also good for jobs in the sector, Dickson told Rigzone.
"Rising oil and gas investment is generally good news for jobs, in terms of safe-guarding existing roles and creating new ones. For oil companies, these will be associated with new projects, and on the supply chain side, for the delivery of required kit,” Dickson said.
In its new report, Wood Mackenzie predicts that deepwater projects will spring back to life in 2017, but warns that more cost cutting is needed in the long run.
“Projects slated for FID in 2017 are largely looking good, but the longer-term deepwater pipeline is more challenged. Of the 40 larger pre-FID deepwater projects, around half fail to hit 15 percent IRR (internal rates of return) at $60 a barrel,” a Wood Mackenzie spokesperson said.
The report also warns against tax increases on the upstream industry and advises governments to change uncompetitive fiscal regimes.
"Some governments will be tempted to increase tax rates, but those with uncompetitive fiscal regimes will have to make changes to ensure they can attract still-scarce new capital,” Graham Kellas, senior vice president of global fiscal research at Wood Mackenzie, said.
“Getting the risk-reward balance right will be a critical factor in attracting scarce investment capture in 2017,” he added.
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