Doing more with less — but still a way to go
The US unconventional sector exemplifies how operational efficiencies can offset low capex and potentially even cost inflation. There has been a dramatic increase in efficiency in the sector, exemplified by the drillers, who are managing to complete wells up to 30% quicker. We think there’s potential for a further improvement in drilling speed of 20-30% for early-life plays such as the Wolfcamp and SCOOP/STACK.
Deepwater projects remain more challenged. Many of the projects slated for FID in 2017 are competitive with tight oil, but many longer-term deepwater pre-FID developments are still out of the money. Of the 40 larger pre-FID deepwater projects, around half fail to hit a 15% IRR at US$60/bbl.
The industry has selected the best projects to optimise and take forward. In 2017 it will have to turn its attention towards optimising the next wave of developments to get them sanction-ready. Governments will also have a role to play in improving fiscal terms to attract scarce E&P capital.
So what does this mean for the service industry?
Hard times are still ahead for oilfield services, but recovery is in the cards. Companies will be pushing forward with fewer projects and streamlining efforts across the board. Tight Oil is one to watch in the coming year. We expect production to grow by an average 2% across our Corporate Service universe — impressive given development spend was slashed by over 40% between 2014 and 2016. All eyes will be on how quickly the US tight oil sector responds to rising prices.
Improving exploration economics, lower M&A prices and some exciting discovered resource opportunities will help facilitate this shift towards adapt and grow, providing opportunities for the financially strong looking to step up new ventures and business development.