US could become world’s oil king in 2018: Report

LONDON: Despite the strongest start for oil prices in four years, the world’s top oil companies are hesitating to accelerate the search for new resources as a determination to retain capital discipline trumps the hope of making bonanza discoveries.

Exxon Mobil, Royal Dutch Shell, Total and their peers are set to cut spending on oil and gas exploration for a fifth year in a row in 2018, according to consultancy Wood Mackenzie (WoodMac), despite a growing urgency to replenish reserves after years of reining back investment.

Global investment in exploration, vital to increase output and offset the natural decline of existing fields, will reach $37 billion in 2018, down 7 per cent from a year earlier and over 60 per cent below the 2014 peak, according to WoodMac.

For majors, spending will collectively drop by around 4 per cent this year to represent about a tenth of investment in oil and gas production, known as upstream.

“This could be the new normal, with the days of one dollar in six or seven going to exploration forever in the past,” WoodMac said in a report.

The declines, however, mask a modest uptick in drilling activity as lower rig rates and a focussed approach on well-charted basins allow firms to do more with their money, according to WoodMac analyst Andrew Latham.

“Investment will be down year-on year but activity will be flat to slightly higher,” he said in an interview.

The collapse in oil prices in 2014 led to a deep retrenchment in spending for the sector, but companies still need to increase their resources as reserves dwindle.

As crude prices and profits recover — prices are currently above $65 a barrel, the highest since mid-2015 — the push to beef up reserves will only increase.

The exploration success rate has dropped from 40 per cent to 35 per cent over the past decade, highlighting the importance of acquisitions as an alternative, albeit generally more expensive, to build resources.

“Exploration spending (is) to remain low ... implying the need for more merger and acquisition” activity, analysts at RBC Capital Markets said.

After spending more than $30 billion on acquisitions in 2017, oil Majors are expected to continue to make bolt-on purchases in areas where they already operate, even though the “upstream M&A window is starting to close,” RBC said, alluding to higher asset valuations and fewer distressed sellers.

The majors will once again be the ones to watch thanks to stronger balance sheets compared with smaller rivals, WoodMac’s Latham said.

Exploration is expected to focus on deepwater basins such as Mexico, Brazil and Guyana where large discoveries have been made in recent WASHINGTON: The US could become the oil world’s new king in 2018 as it was poised to ramp up crude oil production by 10 per cent to about 11 million barrels per day, according to a report.

The report by research firm Rystad Energy said surging shale oil output should allow the US to dethrone Russia and Saudi Arabia as the planet’s leading crude oil producer, reports CNN.

The US has not been the global leader, nor ahead of both Russia and Saudi Arabia, since 1975. “The market has completely changed due to the US shale machine,” said Nadia Martin Wiggen, Rystad’s vice president of markets.

The prediction shows how the fracking revolution has turned the US into an energy years, offering more confidence that additional resources could be found, he added.

The most watched exploration wells include BP and Kosmos Energy in Senegal, Total and Petrobras in Brazil, Exxon in Guyana, Total and Pemex in Mexico and Eni in Cyprus, powerhouse — a transformation that President Donald Trump vowed to accelerate by cutting regulation.

This long-term shift has allowed the US to be less reliant on foreign oil, including from the Middle East, the report said.

US oil production slipped but did not completely collapse after Saudi-led Opec launched a price system in 2015 aimed at reclaiming market share lost to shale and other players. A massive supply glut caused crude to crash from around $100 a barrel to a low of $26.

Domestic output bottomed at 8.55 million barrels per day in September 2016, down 11 per cent from the peak in April 2015, the US Energy Information Administration said. according to WoodMac.

The growing appetite for exploration was made clear last October when the top oil companies vied for blocks in Brazil’s first deepwater oil auction for foreign operators, where Shell was awarded half of the blocks.