Oil and gas companies are being forced into survival mode in 2016. Recent reported results show the extent of the year-on-year losses experienced by many in the industry. The continued low crude price and need for further cost deflation in key areas means further project delays and cuts to discretionary investment are highly likely.
Assets with 2016 FID prospects
As we learned from our 2015 FID analysis, the projects that received the green light last year had either already benefited from superior economics, captured lower costs or had been comprehensively re-phased and re-designed. Although difficult to predict which projects will progress in 2016, we note that some that are markedly more advanced than others. Chevron's Tengizchevroil Future Growth Project in Kazakhstan and Cobalt/Sonangol's Cameia deepwater development in Angola, were two forerunners for FID early this year, as highlighted in our Pre-FID 2016 insight.
Tengizchevroil was initially expected to achieve FID in late-2014. Despite Chevron spending 2015 optimising costs, lowering capex and fine-tuning engineering, recent insight from its Q4’s results point to further delay; highlighting how low prices will continue to constrain a new wave of investment. Cameia originally had a late-2015 FID, but progress slowed with the price crash; we still expect to see an investment decision in 2016.
Key factors for investment decisions
The list of projects that will recieve FID through 2016 will continue to fall if low oil prices are sustained as as companies look to capture a potential price recovery and the opportunity to capture lower costs through deferring project sanction to late-2016 or 2017 decisions. At that point there should be greater visibility on how cost deflation and design optimisation could improve project economics.
Adverse market conditions could also have a positive longer term impact. Companies are being forced to re-evaluate how they can profitably develop large, high-cost conventional resources in a low price environment. This will manifest in a push towards standardisation, and hopefully promote a level of innovation only seen in US tight oil. Project breakevens will fall. In addition, we expect oil prices to start recovering during the second half of the year, which should encourage first-movers to kick-start investment.
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This insight has been developed using a suite of proprietary tools, including our Upstream Data Tool, setting the industry standard for upstream oil and gas data.