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Wood Mac: E&P spend to recover in 2011, flat in 2010; Conoco’s Alaska budget uncertain
Wood Mackenzie predicts investment in the world’s upstream oil and gas sector will grow modestly in 2011, reaching around $350 billion by 2012, down from a five-year peak of $370 billion in 2008 when oil prices topped $140 per barrel.
With some exceptions the international research firm expects 2010 global E&P investment to remain at 2009 levels, which is around $325 billion.
“There will be few major new capital projects implemented through 2010 … as companies await convincing evidence that the recovery will be sustained,” Wood Mackenzie said Oct. 15 about its newly released report, titled, “The first hints of recovery in global upstream spending.”
Iain Brown, vice president upstream energy research for the firm, said in some regions of the world “operators are planning slightly more ambitious” capital programs than in 2009, “reassured” by the oil price remaining at around $70 per barrel, “and ready to exploit significant reductions in the regional cost base. However prudence is the watchword in many other areas, especially where commitments are required to large-scale, long-lead projects, or where commercial or political risks are perceived to be high.”
The report said that many of the areas where growth was maintained in 2009, such as Saudi Arabia and Brazil, were underwritten by major national oil companies.
Cutbacks on investment were “greatest and quickest” in North America, which saw its share of global capital spend fall from 31 percent in 2008 to 24 percent in 2009. In Canada, several oil sands developments were cancelled or postponed, resulting in a 50 percent drop in year-on-year capital spend.
“We expect that North America will recover to provide 27 percent of global spend in 2012, but will not fully recover the lost ground, reflecting residual concerns over the long-term viability of higher cost resources such as oil sands and unconventional gas,” Brown said.
“… We anticipate that companies will demonstrate a preference for low political risk and fiscal stability, such as those offered by high-cost provinces like the U.S., Canada, Australia and parts of Europe, which continue to offer compelling value propositions and attract high levels of external investment.”
How has Alaska fared to date? Only one of the state’s three largest oil and gas investors has released its 2010 capital budget for Alaska. BP’s top Alaska executive said Nov. 18 that the company’s 2010 capital budget for the state will be $850 million, down 15 percent from more than $1 billion this year, about $400 million of which was allocated for the $1.5 billion development of the company’s Beaufort Sea Liberty field.
BP’s 2010 capital budget is about $50 million less than it spent in Alaska in 2008 and $165 million more than it budgeted in 2007.
BP said next year’s budget will be split equally between infrastructure renewal, drilling and growth projects.
Conoco looks at 10% worldwide drop On Dec. 2, ConocoPhillips announced its worldwide capital spending plans for 2010, noting that it was not planning any exploration drilling in Alaska next year, but was changing its exploration focus from onshore (in recent years the National Petroleum Reserve-Alaska) to the offshore federal waters of the Chukchi Sea, where the company hopes to drill in 2012.
ConocoPhillips said the dollars it does allocate for Alaska will be largely spent on “development of the existing Prudhoe Bay and Kuparuk fields, as well as the Alpine field and satellites on the Western North Slope.”
Alaska’s share of Conoco’s North America capital budget for 2010 will be released at the company’s annual analysts meeting, which was held in March in 2009.
Conoco said its companywide $11.2 billion capital budget for 2010 represents “a 10 percent decrease from estimated 2009 expenditures.” Approximately 86 percent of the capital program will be for exploration and production.
North America capital spending will be largely allocated to “the highest-graded production basins and opportunities,” the company said.
—Kay Cashman
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