Woodmac: Deepwater will spring back to life in 2017

Energy intelligence group Wood Mackenzie sees the deepwater upstream oil and gas sector springing back to life in 2017.

Providing its take on what to expect in 2017, Woodmac forecasts the overall upstream investment cycle will show the first signs of growth in 2017 since 2014 and final investment decisions (FIDs) will double, compared with 2016.

Wood Mackenzie’s global upstream outlook for 2017 forecasts confidence will start to return to the sector, with exploration and production spend set to rise by 3% to $450 billion. This figure covers the sector as a whole, both onshore and offshore.

Malcolm Dickson, a principal analyst for Upstream Oil and Gas for Wood Mackenzie, said: “2017 will demonstrate how efficient the oil and gas industry has become; showing projects in better shape all round.”

“The global investment cycle will show the first signs of growth in 2017, bringing the crushing two-year investment slump to a close,” he said.

The number of FIDs is expected to rise to more than 20 in 2017, compared with nine in 2016. This is still well short of the 2010-2014 average of 40 a year, Woodmac says.

Deepwater

Deepwater FIDs will be a leading indicator the tide is turning. The best development assets will hold their own against tight oil, especially as more risk-averse tight oil operators start to screen opportunities under higher discount rates.

According to Wood Mackenzie, deepwater 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% IRR at US$60 a barrel.

“The industry has selected the best projects to optimize and take forward. In 2017 it will have to turn its attention towards optimizing the next wave of developments to get them sanction-ready,” said Dickson.