Global oil, gas spend­ing to rise

In­crease will be first in two years, re­port says

The Daily Press (Timmins) - - BUSINES - Jesse Sny­der

CAL­GARY — Global spend­ing in oil and gas is ex­pected to rise in 2017 for the first time in two years, a new re­port says, al­though spend­ing in Canada’s oil­sands will re­main piece­meal as in­vestors cool on longer-term de­vel­op­ments.

Con­sul­tancy firm Wood Macken­zie said in a re­port re­leased Wed­nes­day that global in­vest­ment in the ex­plo­ration and pro­duc­tion end of the sec­tor will rise by three per cent this year, to $450 bil­lion US. That would mark the first time up­stream spend­ing has grown since 2014, when com­mod­ity prices be­gan their sharp de­cline.

But the uptick in spend­ing will likely come in a form that is starkly dif­fer­ent from most of the past decade in Canada’s oil­sands, as ma­jor pro­duc­ers tar­get cheaper de­vel­op­ments.

To­tal global spend­ing on longert­erm de­vel­op­ments will re­main low com­pared to past years, while in­vestor re­turns for the year could be sub­stan­tially higher amid “a shift in cap­i­tal al­lo­ca­tion away from com­plex mega projects to­wards smaller, in­cre­men­tal projects in the Cana­dian oil sands and deep wa­ter,” Wood Macken­zie an­a­lyst Mal­colm Dick­son said in a re­lease.

Canada’s oil­sands are ex­pected to be among the re­gions most deeply im­pacted by dwin­dling in­vest­ment, as in­vestors favour com- pa­nies of­fer­ing quicker re­turns like those op­er­at­ing in U.S. shale basins.

“It’s not go­ing to be neg­a­tive, but I wouldn’t ex­pect the pos­i­tive ef­fect to be as pro­nounced as it would be in other basins, like let’s say the Per­mian in the United States,” said Cal­gary-based Wood Macken­zie an­a­lyst Stephen Kal­lir.

Oil­sands play­ers are in turn tar­get­ing smaller de­vel­op­ments to keep pace. Husky En­ergy Inc. has a back­log of 10 oil­sands projects in the 10,000-to-15,000 bar­relper-day range at its leases near Lloy­d­min­ster, Alta., that it could build in com­ing years, ac­cord­ing to Kal­lir.

The strat­egy is part of an on­go­ing shift away from the costly megapro­jects that oil­sands com­pa­nies pur­sued when prices were higher, which are typ­i­cally cat­e­go­rized as be­ing around 100,000 bpd or larger. Husky and oth­ers, in­clud­ing Sun­cor En­ergy Inc., have be­gun fo­cus­ing on build­ing smaller, in­cre­men­tal fa­cil­i­ties with nearly iden­ti­cal de­signs. In Husky’s case, the smaller de­vel­op­ments at those leases has “al­lowed them to keep cap­i­tal costs down,” Kal­lir said.

Mean­while, a hand­ful of other in­cre­men­tal ex­pan­sions are mov­ing for­ward. Cen­ovus En­ergy Inc. is mov­ing ahead with its 50,000bpd phase G ex­pan­sion at its Christina Lake lease. Cana­dian Nat­u­ral Re­sources Ltd. an­nounced in the third quar­ter of 2016 that it was press­ing ahead with its Kirby North ex­pan­sion to raise pro­duc­tion from 10,000 bpd to 50,000.

Adding to the chal­lenges faced by oil pro­duc­ers more broadly in 2017, the Wood Macken­zie re­port es­ti­mates that cost-cut­ting in the oil and gas sec­tor will more or less plateau as ser­vice com­pa­nies be­gin rais­ing their prices.

“I think we’ve seen the trough in re­gards to ser­vice pric­ing,” Kal­lir said.

The an­a­lyst ex­pects cap­i­tal costs among ser­vice firms to fall by a mod­est three to seven per cent over the year.

Glob­ally, the $450 bil­lion US in spend­ing in 2017 is still 40 per cent be­low the 2014 av­er­age, sug­gest­ing com­pa­nies are still hes­i­tant to shell out cash amid lin­ger­ing con­cerns over mar­ket un­cer­tainty.

In­ter­na­tional en­ergy in­vest­ment plum­meted fol­low­ing the col­lapse of oil prices in 2014. To­tal en­ergy spend­ing dropped eight per cent in 2015, to $1.8 tril­lion US.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.