Global upstream FIDs on track to double in 2017: WoodMac
The industry has already witnessed 15 upstream project sanctions which equates to about 8bn barrels of oil equivalent of reserves, mostly in brownfield projects
According to a recent report by global energy consultancy firm Wood Mackenzie, titled: ‘A big year for FIDs: 2017 marks a turning point’, the number of upstream projects reaching FID (final investment decision) in 2017 could double to 25 compared to only 12 last year.
In the first half of the year, the industry has already witnessed 15 project sanctions which equates to about 8bn barrels of oil equivalent (boe) of reserves, mostly in brownfield projects. This is almost comparable to project sanctions in the whole of 2016, which saw 12 FIDs and 8.8bn boe of reserves approved.
"These are positive signs that the upstream industry is continuing on the road to recovery and that the more competitive conventional projects are moving down the cost curve sufficiently to attract new investment," Angus Rodger, research director, Asia-Pacific upstream, was quoted as saying in a press release received by arabianoilandgas.com.
"Eleven of the 15 project sanctions year-to-date are either brownfield expansions on existing fields, satellite developments or subsea tiebacks. Not only are these projects less risky than greenfield developments, they also tend to be less capital-intensive and are quicker to bring onstream, offering a quicker payback and better returns on development dollars," says Rodger.
"This is reflected in lower development capex per barrel and stronger project returns. For example, on average, project capex is down to $11/boe versus $15/boe in 2015, and IRRs at 15% in 2017 versus 11% in 2015," Rodger comments. (IRRs run on a flat $50/bbl Brent deck in 2017, escalating at 2% per annum thereafter.)
Another clear trend is that the oil majors dominate the FIDs scene. Eight of the 15 project sanctions in 2017, are operated by the majors. Of the 35 mid-to-large projects sanctioned since the start of 2015, 19 were major-operated. This equals just under 14bn boe of the 22bn boe total of commercial reserves sanctioned.
Wood Mackenzie estimates that these projects would make up 1.6mn boe per day of net new production to the majors by 2024, which is around 6% of total output from the peer group.
Conversely, the national oil companies (NOCs) have tightened their purse strings and have been noticeably inactive on new project investments over the 2015-H1 2017 period. Operating less than 1bn boe of the 22bn boe total of sanctioned commercial reserves, NOCs need to be on the lookout for investment opportunities as many face significant production declines post-2020.
"The second half of 2017 could see another 11bn boe of reserves hit FID, and again we expect strong activity from the majors. However, it is also important to note that last month ExxonMobil sanctioned the first phase of development on the 1.5bn boe Liza oilfield. This goes to show that it is not just about short-cycle investments; the best greenfield opportunities are also moving forward to commercialisation," Rodger states.