Understand where to focus in an evolving market

10

Upstream Issues

for 2018

Top

Focus has shifted from newfield wildcat exploration to rebuilding positions in older basins

Exploration budgets continue to be constrained, with projected 2018 exploration spending nearly flat with 2017 levels. Focus has shifted from newfield wildcat exploration to rebuilding positions in older basins via whole basin strategies. 

Evolving aboveground conditions will continue to both attract and deter foreign investment

Governments are expected to make further adjustments to fiscal terms, national oil company (NOC) roles, local content requirements, and other upstream investment terms - not all of them positive for investors.

NOC competition in domestic basins continues to heighten as sovereign parents move to address domestic energy market imbalances

New basin openings and new licensing rounds in basins already open to foreign equity participation have delivered expanded opportunities for E&P companies that have retained an international growth strategy.

For the first time, the upstream oil and gas industry faces the threat of energy

For the first time, the upstream oil and gas industry faces the threat of energy substitutes, including renewables, as a legitimate force within the competitive landscape.

Uncertainty in oil supply fundamentals will continue as key producing countries look to log 50-year highs and lows in crude oil production

US crude oil production is forecast by IHS Markit to average 10.4 MMb/d in 2018, a level not seen since 1974.

More clarity regarding the durability of three of the most important E&P openings since the fall of the Soviet Union in the early 1990s

By the end of 2018, national political elections will have set the future direction for the Mexican E&P opening and the broader opening in Brazil post-2016.

Forecast cost escalation to be tempered by continued advances in new technology application and process efficiencies

Upstream construction costs are projected to rise in 2018, with onshore costs exhibiting stronger escalation than offshore costs.

Planned activity levels in the permian and more generally across the US onshore resource plays test the capacity of the service sector and existing infrastructure

US onshore shale players have ramped up 2018-19 capital spending intentions and production targets across the board, from the smallest independents to the Global International Oil Companies.

Final investment decisions (FID) proceed at the fastest pace since 2013

Outside of the US onshore/shallow water and Gulf-6 Mideast states, there were only 3 projects sanctioned in 2016 and 15 in 2017 with peak production capacity in excess of 30,000 b/d.

Sustained price recovery will test the commitment to business discipline achieved by E&P management following three years of weak energy prices

The past 36 months of volatile but generally weak crude prices ushered in a trend of portfolio narrowing, as many exploration and resource development opportunities became uneconomic.