Global upstream capital spend from 2015 to 2020 has shrunk by 22% or US$740 billion. When we include cuts to conventional exploration investment, the figure increases to just over US$1 trillion.
The impact of the drop in oil prices on global upstream development spend has been enormous. Companies have responded to the fall by deferring or cancelling projects.
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Has the rebound in oil price led the way for a wider recovery across the board or do signs point to further reductions to come?
It's been two years since the dramatic fall in oil prices and there has been huge impact on upstream development investment. Virtually every oil producing country has seen cuts, with the US onshore particularly affected. The Middle East faces fewer spending cuts and projects are progressing in order to maintain market share but fiscal balances there are deteriorating.
In North Africa, major gas developments such as Eni's Zohr underpin investment despite deep cuts elsewhere throughout the region. BP's West Nile Delta project in Egypt will push ahead and deferrals on other Mediterranean projects have helped free up cash to fund the development.
Although exploration investment has more than halved since 2014, and the figure is expected to be around US $42 billion per annum for 2016 and the same in 2017, costs have not been cut as much and as quickly as we expected. Some deepwater exploration spend has been protected by long rig contracts, but as these unwind we expect sharper cuts than in non-deepwater.
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Is there a bright side?
A more positive note for operators shows that cost deflation has played a major role in capital spend. For example, the US unconventional sector reduced costs by 25% on average in 2015. Using our proprietary Global Economic Model, we've modelled expectations to 2016 to yield another 10%.
Projects that are progressed will be due to substantial cost cuts. But we'll need more cost deflation and project scope optimisation along with confidence in higher prices and additional fiscal incentives to kick-start the next investment cycle.