Wood Mac: 2016 Promises Upstream Opportunities despite Tough Times

Wood Mac: 2016 Promises Upstream Opportunities despite Tough Environment
A new report from oil and gas consultancy Wood Group shows that 2016 promises many opportunities around the world for the upstream sector in spite of challenging times.

A new report released by Wood Mackenzie shows that, in spite of a challenging year ahead for the oil and gas industry, 2016 promises many opportunities around the world for the upstream sector.

One of the leading research and consulting firms following the oil and gas sector, Wood Mackenzie asked its teams around the world to highlight the main events in their regions for its Global Upstream report. These analysts point to several positive developments for the upstream industry in 2016 ranging from Canada to Australia and from Mexico to Siberia.

Smaller GOM Players Expected to Surprise in 2016

In the Americas, Wood Mac predicts that, despite lower oil prices and deferred development, an additional 250,000 barrels of oil equivalent per day of new Gulf of Mexico production will hit the market in 2016, pushing GOM production to a new peak of 1.9 million boepd. As production grows, the research firm expects many large and mid-sized companies will curtail development plans, but it also believes that smaller, private equity-backed players will surprise and press forward with development work and exploration activities. These latter companies favour the low-risk, low-cost Miocene plays, which are ideal in a low-oil price environment, Wood Mac's analysts said.

In addition, the GOM industry is expected to experience a pickup in the M&A market after years of showing a faint pulse.

"With oil prices continuing their downward spiral, sellers are more motivated than ever to offload positions. Look for private money to pick up bargains, especially in the less intensive capex projects," Wood Mac said.

"Meanwhile, we are looking for some large players with limited exposure to deepwater GOM to increase their exposure in the form of significant asset deals or outright takeovers of mid-sized players."

In Canada, Wood Mac believes that LNG "is a go". It said that Canada will forego any oil sands project final investment decisions this year, but will instead welcome construction start-up at Petronas's Pacific North West LNG project in British Columbia. The LNG project is now advantaged by the depreciated Canadian dollar and lower wage costs brought on by low oil prices.

Offshore Canada, Wood Mac said that exploration projects have impressed.

"Both the Nova Scotia and Newfoundland & Labrador provinces of Canada stood out in 2015 for active offshore exploration campaigns. In 2016, we expect both regions to continue to buck the global trend of declining exploration activity. More companies will join the exploration efforts and a development timeline for the Bay du Nord discovery in the Flemish Pass will be established," it said.

South of the border, Wood Mac believes that Mexico's deepwater licensing round will be a success.

"The deepwater phase of Round One will close in late 2016. It will be highly contested and a success. This phase offers 10 blocks in the Sabinas-Rio Grande (primarily Perdido Foldbelt) and Salinas Sureste basins. Given the long lead time of deepwater projects, high prospectivity of acreage and favourable contracts, Mexico's deepwater will be attractive even at today's oil prices," Wood Mac said, stating that it estimates yet-to-find resources range between 15 and 20 billion barrels of oil equivalent in the Sabinas-Rio Grande basin.

In Brazil, Wood Mac does not expect Petrobras to hit its $15.1-billion divestment target by the end of 2016. "Petrobras will be competing against over $320 billion of upstream assets on the market, making it harder to hit its target," it said, pointing out that the Brazilian firm will focus on divesting its downstream assets.

Iran to Dominate Attention in 2016

In the EMEA, Russia and Caspian region, much attention will be focused on Iran during 2016. In the early part of the year, Iran is expected to offer 52 development projects and provide more details on the Iran Petroleum Contract terms

"However, negotiations will take time. We do not expect any meaningful ramp up in production from new developments this year," Wood Mac said.

Offshore Egypt, Italian firm Eni is expected to sanction the Zohr super giant field, which was discovered in the summer of 2015.

"Work has started on the first of three appraisal wells that will form the basis of the 800-million cubic-feet-per-day phase one subsea development. With an ambitious plan of first gas in 2017, Eni will need to work quickly to install subsea equipment and tie the field back to existing infrastructure, over 130 kilometers [80 miles] away."

Elsewhere in Africa in 2016, Wood Mac expects Sub-Saharan Africa to offer plenty of M&A opportunities throughout the region as a range of companies look to generate cash.

"Majors, NOCs, mid-caps, independents and juniors will all be looking to sell a variety of assets. But the question is: where are the buyers?" it said.

Meanwhile, production is set to stagnate for two of Africa's biggest producers – Nigeria and Angola – as investment cuts bite.

The 2016 headline for the Caspian region will be the final investment decision (FID) for the Tengizchevroil Future Growth Project (FGP) – a $30-billion expansion project at Kazakhstan's largest liquids producer.

"Sanction of the capital-intensive project will be the largest global FID of recent years, dwarfing the shortlist of other approvals expected in 2016," Wood Mac said.

In Russia, Wood Mac expects liquids production to be unaffected by the low oil price environment, with 2016 production to remain greater than 10.7 million barrels per day. But the upstream sector in Russia will face uncertainty as the Russian government considers tax changes amid failing budget revenues, with continued EU/US sanctions, geopolitical risk and a volatile rouble all continuing to be challenges.

Perhaps the worst part of the EMEA region will be the North Sea, where Wood Mac sees a further drop in capital investment, falling exploration activity and rationalization of operations "as the industry looks to survive and adapt to another year of low prices". Although 13 fields are scheduled to start up in the North Sea during 2016, the consultant noted that several UK fields were operating with a cash flow negative position in 2015 and that some are now going to be retired early.

Regulatory and Fiscal Changes Expected in China and the Wider Asia Region

In Australia, Wood Mac does not expect the final investment decision for the Browse floating liquid natural gas project to occur in 2016 as currently scheduled. Instead, the consultant reckons 2017 is more viable because of the challenges associated with the project's huge capital requirements and breakeven economics. However, the Gorgon LNG project is expected to finally start production in June 2016.

In China, Wood Mac expects the country's national oil companies to struggle to balance shale development while cutting costs and curbing the most-expensive production in the face of an over-supplied gas market. It said that Sinopec and PetroChina will continue investing in shale to support the government's ambitious targets in spite of capital constraints and the significant slowdown in China's gas demand growth.

For international oil companies in China, BP "has been swimming against the tide" as the other majors reduce their exposure to China and refocus on core assets.

Meanwhile, although China's five-year plans have historically been relatively light in respect to the upstream sector, Wood Mac expects this to change under the 13th FYP.

"We've already seen significant policy changes in 2015; in natural gas pricing, licensing rounds and retail fuel pricing. We expect more moves to reduce NOC dominance, encourage new domestic players and diversify sources of investment."

Elsewhere in Asia, Wood Mac sees many countries looking at how to adapt their tax regimes to secure future upstream investment now that Indonesia and India have embarked on a review of their fiscal terms.

Another theme for AsiaPac is M&A activity. "Shell, ConocoPhillips, Chevron, Repsol and Total are amongst the players looking to renationalize South-Eastern Asia portfolios, where growth prospects have been impacted by challenging fiscal terms, poor exploratory results, regulatory uncertainty and emboldened IOCs," Wood Mac said.



WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Kartikey Mevada  |  January 31, 2016
Food for thought

RELATED COMPANIES
Company: Petrobras more info
Company: TotalEnergies more info
Company: ConocoPhillips more info
Company: Chevron Corporation more info
Company: PetroChina more info
Company: ENI more info
Company: PETRONAS more info
Company: Repsol more info
Company: Sinopec more info
Company: Wood Mackenzie more info
Company: Royal Dutch Shell plc more info

Most Popular Articles