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Oil & Gas companies to turn cash flow positive in 2017
International analyst firm Wood Mackenzie’ global corporate outlook for 2017 forecasts the oil and gas industry to turn cash flow positive for the first time since the downturn, if OPEC production cuts drive oil prices above $55 per barrel.
Tom Ellacott, senior vice president of corporate analysis research at Wood Mackenzie, said: “Most oil and gas companies will start 2017 on a firmer footing, having halved cash flow break evens to survive the past two years. Further evidence of a cautious, U-shaped recovery in investment should emerge.”
In 2017, according to the firm, strengthening finances will still be a top priority for oil companies. Capital discipline, cost reduction and deleveraging will frame corporate strategies in 2017. But 2016 will prove to be the low point in the investment cycle, with confidence boosted by OPEC’s decision to cut production.
US-based companies will respond first to rising prices, the report said. Emboldened by a Trump administration committed to exploiting domestic oil and gas resources, US L48 operators have three core competitive advantages: access to capital; cost-advantaged portfolios; and flexibility to scale back spend sharply if prices stay low.
According to Wood Mackenzie’s analysis the US Independents could increase investment by over 25% if oil prices average above $50 per barrel. But spend for the bigger players will continue to trend down – total investment by the Majors will fall by around 8% as recent capital-intensive projects wind down.
“More companies will strive to adapt by positioning portfolios lower down the cost curve. The hot oil plays are US tight oil, with the Permian Basin to the fore, and Brazil pre-salt. Both have materiality and development break evens which are among the lowest globally. Renewables exposure will continue to build, though scarce capital and improving returns from upstream suggest small steps in 2017 rather than transformational moves,” the analysis firm said in a statement.
Wood Mackenzie forecasts production from the 60 companies covered in its corporate service to grow by an average of 2%, which is impressive given development spend was slashed by over 40% between 2014 and 2016.
A selection of international Independents and leading US unconventional players will deliver top-ranking performance on production growth metrics. However, savage investment cuts, asset sales and low prices will take their toll with 23 players experiencing declining volumes in 2017.
Wood Mackenzie expects the trend of improving exploration success rates and full-cycle returns to continue in 2017, with more Majors and National Oil Companies stepping up new ventures activity.
“Mergers and acquisitions will also offer an attractive value proposition for the financially strong prepared to take a bullish view on long-term prices,” said Ellacott. “Low-cost, low-risk discovered resource opportunities will look attractive again. And the larger players will need these to ensure long-term portfolio renewal as part of a more balanced growth strategy.” Dustin Hopkins Womens Jersey
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