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‘Industry players expect spending to grow’: WoodMac

Survey reveals upstream companies see oil prices increasing in the years ahead

Industry players are getting to grips with a volatile and uncertain sector, as a recent survey revealed that upstream companies are expecting increased spending in the years ahead, according to consultancy Wood Mackenzie.

The survey looked at how the sector’s key players view the future, and, while consensus remains that “the oil and gas industry is facing a challenging year”, companies expressed optimism about oil prices.

“The industry is very cautious right now and risk appetite is low. The upstream sector’s key priorities for 2017 include protecting the dividend and strengthening balance sheets,” Martin Kelly, WoodMac’s head of corporate analysis, said.

According to the survey, “there is a clear consensus that oil prices will be in the $50 to $60 per barrel range this year (80% of respondents)”. However, 75% of responders also said that oil prices “will be in the $60 to $80 per barrel range in 2020”. “If correct, (this) will generate significant free cashflow for the industry,” Kelly said.

The survey also found that on balance, respondents expect investment in M&A, exploration and capital spending to rise this year. However, only 25% of our survey’s respondents believe that frontier exploration or corporate M&A will deliver the best returns this year.

“Uncertainty remains about service costs, with respondents split almost equally over whether they will rise or not in 2017,” the survey showed.

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Wood Mac’s survey also revealed that, moving forward, the industry could increasingly get involved in renewables.

The survey showed that 75% of responders said that the best way for the industry to respond to climate change is to “either reduce carbon footprints or increase exposure to renewables”.

Meanwhile, consultancy Westwood has warned that the industry needs to “focus on finding low cost oil and gas profitable to develop at $40 per barrel or less”. 

Westwood said that “finding costs need to be kept below $1–2 per barrel, or perhaps a bit higher for near field discoveries where development costs are lower”. 

“Being the average explorer of the past few years will not be good enough – companies will need to believe they have the acreage portfolio, technology, people and processes to create value,” it said. 

“This means an efficient exploration process with larger prospect portfolios and fewer, better wells targeting bigger prospects at higher commercial success rates.” 

Westwood added: “If the industry is out of the emergency room in 2017, it is not yet out of hospital.”

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