Last updateThu, 24 May 2018 2pm


Oil Companies Reining in Costs of Major Projects

Wood Mackenzie is forecasting lower costs, lower breakevens, higher prices and improved corporate finances all contributing to an upgrade in energy industry sentiment and more projects getting sanctioned in 2017.

However, the projects that did get the greenlight are notably smaller. The average capital expenditure to develop 'major' projects sanctioned in 2017 fell to only $2.7 billion, the lowest in a decade. To put this into context, the average project capex for those sanctioned over the last decade was $5.5 billion. 

U.S. Likely Headed to Record Crude Production

Annual average U.S. crude oil production reached 9.3 million barrels per day (b/d) in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016. In November 2017, monthly U.S. crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in U.S. history. U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tight rock formations using horizontal drilling and hydraulic fracturing. EIA projects that U.S. crude oil production will continue to grow in 2018 and 2019, averaging 10.7 million b/d and 11.3 million b/d, respectively.

Although much has changed since 1970, Texas continues to produce more crude oil than any other state or region of the U.S. Texas has held the top position in nearly every year since 1970, with the exceptions of 1988, when Alaska produced more crude oil than Texas, and from 1999 through 2011, when production from the Federal Gulf of Mexico was higher. 

Upstream M&A Totals $32 Billion in First Quarter

Global upstream oil and gas M&A transactions totaled $32 billion in Q1 2018, supported by strong U.S. activity focused on the Permian Basin, according to 1Derrick. Deal value in Q1 2018 was less than half the record-setting $63 billion in Q1 2017, but on par with deal value run rate during in Q2-Q4 2017. U.S. deal value rebounded from a weak $19 billion in second half 2017 to reach $22 billion. In contrast, international deal value excluding the U.S. was just $10 billion for the quarter, down from $38 billion a year ago.

The key driver in the steep drop in international activity was lower Canadian oil sands and North Sea deal flow, which plunged to $1.1 billion and $0.69 billion in Q1 2018, respectively, after totaling $24.4 billion and $5.3 billion in Q1 2017. 

U.S. Specialty Chemicals Market Regains Momentum

The American Chemistry Council (ACC) reported that U.S. specialty chemicals market volumes regained momentum, increasing 0.4% in February after only a 0.1% gain in January. All changes in the data are reported on a three-month moving average (3MMA) basis. Of the twenty-eight specialty chemical segments ACC monitors, twenty-one expanded in February and seven experienced decline. During February, large market volume gains (1.0% and over) occurred in food additives, mining chemicals, oilfield chemicals and textile specialties.

The overall specialty chemicals volume index was up 5.1% on a year-over-year (Y/Y) 3MMA basis. The index stood at 113.1% of its average 2012 levels. 

Goldman Sachs: Oil Majors Entering New “Golden Age”

According to Goldman Sachs, the world’s largest oil companies “have survived a life-changing crisis, and are now poised to reap the rewards,” Bloomberg  reports.

“Oil majors [are] in a sweet spot with rising oil prices and low operating costs, leaving them with the biggest cash-flow growth in two decades and boosting earnings, Goldman said in a report Monday. That will increase their attraction for investors after years of elevated spending followed by crude’s slump sent their weighting in global equity indexes to a 50-year low, according to the bank.”   



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