Deloitte: Upstream activity to rise in 2017
OREANDA-NEWS. September 22, 2016. US oil and gas companies will step up activity in 2017 as they start to increase their spending amid a recovery in prices, consultancy Deloitte said.
The bulk of activity will be focused on the completion business — when a well is brought into production — with very little investments going into exploration, John England vice chairman of Deloitte said.
A survey by the consultancy of 251 oil and gas industry executives, done between June and July, shows that 43pc expect an increase in upstream capital expenditures (capex) next year, while 25pc expect an increase this year. About 28pc expect capex levels will be held unchanged this year and 27pc think it will stay flat next year.
A prolonged oil market downturn that began in mid-2014 saw producers sharply lower their spending plans to cope with prices that swung as low as \\$26/bl in February. A recovery to near \\$50/bl and relative stability is giving producers confidence to gradually loosen their purse strings and plan for a step up in activity by bringing on more rigs.
"The study found optimism, however cautious, has returned for an industry recovery," it said. The recovery will be "tied directly to oil prices, expected to return to a level high enough to restore profitability and growth by next year."
A WTI price of \\$60/bl is an "important boundary line" in most people's view, in order to revive oil and gas exploration and production activity, it said. WTI may average \\$40-\\$60/bl, according to 71pc of the respondents, or at least by the end of the year. About 44pc of the respondents expect prices to be in the \\$60-\\$80/bl range by 2017. The price difference between WTI and Brent would hold between parity and a \\$5/bl premium for Brent. For natural gas, a majority see prices remaining range bound, between \\$1 and \\$2.50-\\$3.50/mmBtu for 2017 through 2020.
"A large majority do not foresee crude oil prices returning to \\$80-\\$100/bl for WTI and Brent over the next three years," it said.
Amid that price outlook, US crude oil output is expected to average between 8mn-9mn b/d through 2017.
Of the total cost cuts that producers have been able to make, 20-40pc of them are short-term, which means they largely reflect discounts given by service providers. Those savings may go away as activity levels improve.