Pre-FID 2016: US$380bn of capex deferred



Twenty-two major projects and seven billion boe of commercial reserves delayed – that's the damage of the last six months.

This represents the additional pre-financial investment decision (FID) projects and volumes we estimate have been deferred due to lower oil prices. This is in addition to the existing 46 developments and 20 billion barrels of oil equivalent (boe) reserves we identified in June 2015.

Since the oil price collapse in 2014, we have been tracking deferred upstream projects. This data is collated using a combination of propriety tools and our network of expert analysts on the ground across the globe. Our tally now sits at 68 major projects containing 27 billion boe. This equates to US$380 billion of capex deferred by total project spend in real terms. As oil prices continue to fall and capital allocation tightens, we expect the list will grow further.

Impact on future oil production

The level of production impacted by these deferrals is material in a global context. In June we estimated the delayed projects accounted for around 1 million b/d of liquids output by 2021, rising to just under 2 million b/d by 2025. With more deepwater oil projects getting pushed back, the impact six months later is significantly greater – by 2021 volumes are at 1.5 million barrels per day (b/d), rising sharply to 2.9 million b/d by 2025.

FIDs on many of these projects have been pushed back to 2017 or beyond. Against the backdrop of overwhelming corporate pressure to free-up capital and reduce future spend, investment/output will be pushed back further if prices do not recover.

FID delays, upstream oil projects

Deepwater is hit the hardest

Over the next five years, US$170 billion of potential investment currently hangs in the balance, across these 68 projects. This is disproportionately weighted towards deepwater projects where half of new projects have been deferred, up from 17 to 29. Deepwater has suffered due to the combination of insufficient cost deflation and significant upfront capital spend discouraging companies from greenfield investment in the sector.

Deepwater is not being disregarded as an investment theme. A trend is evolving in which companies are taking more time to re-work development solutions and the industry is beginning to agree there is considerable scope for standardisation. Such structural changes take time to develop and implement, but the need to improve deepwater development economics is strong.

2016 has just begun but industry sentiment is at a low. Although the possibility of an imminent wave of new FIDs is slim, the adverse market conditions could have a longer term positive impact. Companies are being forced to find new ways to develop large, high-cost conventional resources.  This will encourage a renewed focus on standardisation and innovation.

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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.

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