ARTICLES

References

It is estimated by Barclays Capital in its most recent industry survey that nearly US$600 billion will be spent by oil and gas exploration and production (E&P) companies in 2012 (an increase of 11 % over 2011).1 One part of the problem is that the oil industry is mature and increasing costs reflect this. In the decade 1995–2004, US$2.4 trillion of capital expenditure resulted in an increase in global oil production of 12.3 million barrels per day (bpd); in the following six years, 2005–2010, despite the same spend, oil production fell by 0.2 million bpd.

Natural gas is a different subject; it is available in abundance but often very distant from the major end-user markets of Europe and South-east Asia. Transcontinental transportation either by pipeline or as liquefied natural gas (LNG) is very expensive, resulting in European gas being four times US prices and Japanese gas being six times US prices.

A very large proportion of oil and gas exploration and production (E&P) spend flows down the supply chain into the offshore contractors and service companies and as orders grow, industry prices will surge to new highs and could ultimately threaten the economics of some field development projects.

The Hunt Is On
A key factor in the overall spend increase is the oil price, which is at its highest level since records began at the outbreak of the US Civil War in 1861. In 2011, Brent crude averaged US$111/barrel – up 13 % over 2010. Although the Organisation for Economic Co-operation and Development (OECD) economies’ oil demand is fairly flat or declining, growth is seen in emerging economies, such as China; however, OECD inventories are at their lowest since 2008.

Douglas-Westwood’s research indicates that eight out of the world’s top 11 oil producers may have passed peak output and the hunt for new production is on. International activity has seen continuing growth over a number of years – the Barclays survey shows that 73 % of E&P expenditure will be outside the US. One major reason for this long-term trend is the increasing focus of E&P dollars offshore.

To read full article please click here.