There are signs that ramping up the intensity of the extraction process in the Permian is suffering from diminishing returns. Drilling longer lateral wells & pumping greater volumes of proppant have not been delivering commensurate volumes of oil. These apparent setbacks may just be growing pains.
The Upstream sector’s carbon emissions are set to increase by around 20% through the mid-2020s, a result of investment in growth resource themes such as LNG, oil sands & heavy oil. E&P companies need a clear strategy to tackle rising carbon intensity if they are to continue to attract capital.
The focus of drilling activity in the Permian Basin has primarily been on tight oil but substantial volumes of gas will also be produced, and will grow at a similar rate into next decade. This has significant implications for US domestic gas supply & Henry Hub prices.
The risks to global oil supply have been driven by changes in OPEC strategy or unplanned disruptions in geopolitical hotspots. The latter are waning, post Iran sanctions, & risks to supply are shifting to US tight oil, set for rapid growth & expected to meet much of the world’s incremental needs.
Global upstream investment is turning the corner. Liquids production from projects sanctioned next year will build to a peak in the middle of next decade just when the market needs it.
There is a huge, potentially lucrative opportunity in digitalisation to reinvent the upstream of the future. But to succeed the industry has to change the way it operates and embedded cultures.
What can the industry do to attract capital back to the sector? Simple – deliver on new targets and keep on doing it; make portfolios resilient to low prices; focus on returns not growth; and resist lapsing into the bad old ways if the oil price bounces.
The proportion of cash flow committed to dividends by the Majors has been rising since 2014. With growth opportunities dwindling, more cash could be headed back to shareholders.
There’s still too much supply in the oil market but what are near term prospects of recovery? Which producers are winners and losers? How long can OPEC cope if prices stay at current levels?
Some of the biggest incumbent LNG suppliers are manoeuvring maintain market share. This could threaten the timing of LNG price recovery next decade and investment in some big green field LNG projects.
The Upstream industry outside the US L48 is still struggling to commercialise discoveries. New thinking is needed if operators are to usher in a new era of investment. A dip in oil prices may be just what’s needed to concentrate minds & encourage companies to challenge industry conventions.
US energy policy is being shaken up. First the domestic agenda, then the international dimension – pulling out of the Paris Agreement on global climate change late last month. An ‘America First’ energy policy is meant to be great news for US producers. But will this boost investment?
The ‘creaming curve’ is a touchstone for planning in any exploration team: indicating basin maturity by showing cumulative volumes of oil & gas discovered. Andrew Latham, our Head of Exploration Research, built a global curve for conventional exploration outside USL48. Three themes stand out.
If success is measured in averting a looming supply glut & bolstering OPEC budget deficits, then the 9 month extension of production cuts is a triumph of pragmatism. But the firmer oil price we expect can only embolden the US tight oil industry.
Permian and emerging plays show still more promise.
‘Underwhelmed’ sums up investors’ indifferent response to the Majors’ Q1 results. The flicker of positive share price movement barely made an impression. This despite trouncing expectations as upstream ‘delivered’ for the first time in nine quarters. What do they have to do to win back favour?
All economists know a strong US$ means weak commodity prices and vice versa. The dollar is currently near record highs against major currencies, a situation at odds with similarly buoyant commodity prices. Is a reverse in the US$’s strength on the cards? What would it mean for commodity producers?
Intensifying activity is strengthening portfolios and finances
Oil and gas companies need to adapt for the world’s future energy needs. The energy mix will undergo profound change over the next two or three decades driven by climate change policy, disruptive technology and consumer behaviour.
What will the energy world look like in twenty years time and beyond? Advances in technology and environmental policy are among the factors influencing demand growth and shaping what may be a very different energy mix in the future.
Can it be that it was all so simple then? Senior executives in the LNG business will look back wistfully at the halcyon days of the trade in global gas, not long ago.
Reports of the death of green field deep water projects may have been exaggerated. Tight oil has garnered all the plaudits in the last few months, rightly given the resurgent growth underway. But there are stirrings in the conventional space too, even …
Last year was the year to hitch a ride on oil, Brent near doubling to US$55/bbl from the Q1 lows. Investors piled into oil-leveraged equities through 2016, the MSCI Energy index surging 23% and outperforming the broader market by 18%.
The oil industry’s biggest companies launch back into growth.
Tight oil producers have embarked upon a new growth phase. Endowed with low-cost resource, they can leapfrog a period of balance sheet rebuilding by tapping eager equity markets and zero straight in on the money.
Canadian heavy crude is a cornerstone of global oil supply now and into next the decade. But growth is likely to be increasingly affected by investor sentiment soured by environmental concerns and competition for capital from tight oil.
Not long ago growth was the big thing. Listed oil and gas companies set aggressive production targets to woo investors, though few succeeded it hitting them. Value then usurped volume as the industry’s Holy Grail. This results season suggests growth targets are making a comeback.
The solution is a sustained focus on deep structural change. There’s much Upstream operators can learn from Downstream, which has emerged thriving from the doldrums of a decade ago.