Editorial

Upstream companies to spend US$25 billion more in 2017

Ambitious growth targets set, particularly in the Permian Basin

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As the price of oil creeps up, are upstream companies primed to ramp up activity? Our analysts share how the guidance issued during Q4 reporting season has shaped the outlook for 2017.

The overall mood was buoyant in stark contrast to steep cuts over the past two years. Among the companies we covered in this analysis, divergent strategies have emerged. Those with exposure to the US Lower 48, particularly the Permian Basin, have set out ambitious growth targets. Larger operators like Total, Chevron and Eni continued to cut investment — focusing on capital discipline.

Budgets are growing, although some are remaining conservative

Upstream investment will increase in 2017 for 98 of the 118 companies that have announced budgets, though the larger companies (including some Majors) and International E&Ps are remaining conservative. The 118 companies plan to spend US$25 billion (11%) more than they did in 2016.

Of this US$25 billion increase, US$15 billion is from companies in our ‘Focused US’ peer group, which has a capex increase of 60% relative to 2016. This includes tight oil specialists such as Pioneer and EOG. Conversely, larger companies — including some Majors, ConocoPhillips, and ‘Focused International’ companies — plan to spend less in 2017 than they did in 2016. These are largely companies coming out of capital intensive phases of investment on conventional projects.

Production output is looking up for the US

Companies are re-focusing on growth. The 97 companies that have announced 2017 production guidance thus far expect to produce a combined 1.2 million boe/d (5%) more than they did 2016, although some of that growth is due to acquisitions. Our ‘Focused US’ peer group account for 800,000 boe/d of the total, up 15% on 2016 levels. In contrast, internationally focused players are guiding for overall production declines in 2017.

We will continue to track and publish reported guidance information throughout the reporting season. For our views, forecasts, and analysis, please refer to our financial health, investment and production growth analysis in the Corporate Benchmarking Tool and related Insight reports from our Corporate and Upstream research teams, such as Corporate themes: 5 things to look for in 2017 and Global Upstream: 5 things to look for in 2017.

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