There is going to be an uptick in exploration activities as leading oil majors are expected to increase their exploration capital expenditure (CAPEX) by 20 to 30 per cent next year, resume drilling in deepwater in a bid to build hydrocarbon-based assets according to John Jeffers, Group Development Director for Oil & Gas at SNC-Lavalin.
While the outlook for the industry has brightened, the heady, free-spending days of $100/bbl are not likely to return any time soon. The deep cost cuts, mass layoffs and project cancellations that enabled the majors to live a little easier with prices closer to $50 remain in place.
“Oil majors can no longer stay away from building reserves,” Jeffers told Rigzone at the Singapore International Energy Week, adding it is a matter of their standing in the global businesses. Opportunities are there as daily rig rates are at $50,000 to $60,000, down from the $120,000 peak seen several years ago, according to sources at rig-builders.
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Besides, Jeffers sees asset swaps among the majors, with a good level of acquisitions of reserves from medium or smallholders in the industry.
Deepwater hydrocarbon production and ultra-deepwater exploration will remain in the ground for a long while. It is only viable at a sustained barrel price of $60 to $65 and he sees 2018 oil prices range between $52 to $58/bbl.
The forecast of increased CAPEX is coming on the back of improved earnings by the oil majors as they are getting back to their normal way of life after surviving a price slump that shook the foundations of their business.
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BP Plc gave the boldest signal yet that the worst of the downturn was over, announcing that it would buy back shares for the first time in three years. BP will start spending as much as $400 million a quarter to buy back shares issued to partly cover dividend payouts and conserve cash.
After posting third-quarter earnings that comfortably beat estimates, shares of the London-based company surged to the highest since 2014, joining its closest peer Royal Dutch Shell Plc at a level not seen since the infamous OPEC meeting that triggered price collapse.
“What the buyback signals are we are back into normality,” BP’s Chief Financial Officer Brian Gilvary said. “We will have to continue to manage the volatility that comes with this market, but we now have a base business that can balance itself at $49/bbl.”
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Brent crude, the international benchmark, rose above $60/bbl last week for the first time since July 2015 as production cuts by OPEC and allies including Russia shrink a global oversupply.
West Texas Intermediate for December delivery advanced $1.10 to settle at $55.64/bbl on the New York Mercantile Exchange and climbed for the fourth week. Total volume traded was about 13 per cent below the 100-day average. Prices rose as high as $54.84/bbl. Brent for January settlement added $1.45 to end the session at $62.07 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.21 to January WTI.
Total SA also reported the highest profit from pumping oil and gas in more than two years, followed by consensus-beating earnings from Chevron Corp. and Exxon Mobil Corp. with the latter posting a 50 per cent jump in net income.
FRANK UZUEGBUNAM
