Upstream Projects’ FIDs to Double in 2017
Published July 18, 2017

A new report by Wood Mackenzie has predicted that the Final Investment Decisions (FIDs) for upstream projects are on track to double in 2017, with operators favouring brownfield projects over Greenfields, while the majors continue to dominate in new project sanctions.

According to the report “A Big Year for FIDs: 2017 Marks a Turning Point”, the number of upstream projects reaching FIDs in 2017 could double to 25 compared to only 12 in 2016.
Wood Mackenzie noted that in the first half of the year, the oil and gas industry has already witnessed 15 project sanctions, which equates to about eight billion barrels of oil equivalent (bboe) of reserves, mostly in brownfield projects.

This, according to the report, is almost comparable to project sanctions in the whole of 2016, which saw 12 FIDs and 8.8 bboe of reserves approved.
According to Wood Mackenzie’s Research Director for Asia-Pacific Upstream, Angus Rodger, “these are positive signs that the upstream industry is continuing on the road to recovery and that the more competitive conventional projects are moving down the cost curve sufficiently to attract new investment.”

“Eleven of the 15 project sanctions year-to-date are either brownfield expansions on existing fields, satellite developments or subsea tiebacks. Not only are these projects less risky than greenfield developments, they also tend to be less capital-intensive and are quicker to bring onstream, offering a quicker payback and better returns on development dollars,” Rodger said.

“This is reflected in lower development capex per barrel and stronger project returns. For example, on average, project capex is down to $11/boe versus $15/boe in 2015, and internal rate of returns (IRRs) at 15 per cent in 2017 versus 11 per cent in 2015,” Rodger added.
The report indicates that IRRs run on a flat $50/bbl Brent deck in 2017, escalating at two per cent per annum thereafter.

The report noted that another clear trend is that the majors dominate the FIDs scene.
According to Wood Mackenzie, eight of 15 project sanctions in 2017, are operated by the majors.
The report added that of the 35 mid-to-large projects sanctioned since the start of 2015, a total of 19 were major-operated.

This equals just below 14 bboe of the 22 bnboe total of commercial reserves sanctioned, the report said.
Wood Mackenzie estimates that these projects would make up 1.6 million boe/d of net new production to the majors by 2024, which is around six per cent of total output from the peer group.
Conversely, national oil companies (NOCs) have tightened their purse strings and have been noticeably inactive on new project investments over the 2015 – first half (H1) 2017 period.

Operating less than one bboe of the 22 bboe total of sanctioned commercial reserves, NOCs need to be on the lookout for investment opportunities as many face significant production declines post-2020.

“The second half of 2017 could see another 11 bnboe of reserves hit FID, and again we expect strong activity from the Majors. However, it is also important to note that last month ExxonMobil sanctioned the first phase of development on the 1.5 bnboe Liza oil field. This goes to show that it is not just about short-cycle investments; the best greenfield opportunities are also moving forward to commercialisation,” Rodger added.