Global upstream spend will recover to over $500 billion
"Global upstream spend is up from lows of $450 billion in 2016 and 2017, having collapsed from the 2014 peak of $750 billion. But not by much. We think spend will recover to over $500 billion by 2020, driven by the US L48, a flurry of deepwater projects and a new phase of LNG investment. It’s a sluggish recovery, geographically very patchy, and a long way from being called a new boom," said the company.
"Oil and gas companies are back in the money. Operationally and financially, all lights are green – production is up, costs are down and margins are up. The Majors are generating more free cash flow at $60 per barrel than they were five years ago at $100."
Wood Mackenzie believes that the same can’t be said for the service sector, which has continued to have a miserable time of it since the 2014 bust. "Returns for many service companies are still scraping along well below pre-crash levels."
"Global upstream investment is only slowly pulling out of the downturn. The service sector thrives in an upcycle. Upstream companies have only just recovered from the ghastly hangover brought on by overspend in the last boom. The industry is determined not to lapse again, is religiously sticking to capital discipline and is shunning growth. The more discipline, the more the stock market seems to reward for returning surplus capital to shareholders. It’s symbiotic and could last for some time."
There has been rationalization – global capacity across the sector reduced by around 25 percent on average since 2014, according to Wood Mackenzie, told Trend.
"Yet capacity utilization is still modest, based on key indicators like jackup rigs (70 percent) and floating production system fabricators (50 percent). The spend increase we forecast won’t tighten most markets and bring back pricing power. More capacity needs to come out."