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Special Feature

2018 Global Cap-ex On Cautious But Steady Growth Track

Featured in January, 2017 Edition By Alok Raj Gupta
I have tracked cap-ex of global oil and gas industry for many years, based on which, I can tell you that it is one the best KPIs reflecting the financial health and level of confidence of the oil & gas companies. Financial health had taken a serious toll during 2015 and 2016 when crude oil price were down up to 65-70% as compared to the 2014 H1 levels. This had resulted in as much as 30% annual reduction in capital expenditure by some companies. Crude prices recovered nearly 15% in 2017, and steadily so in the second half of the year, resulting in modest yet very cautious rise in spending, only in selected quarters of the industry. At least the downward trend halted in 2017, marking the year (or point) of inflection, before, as it is hoped, sun begins to shine on oil & gas spending in 2018.

With Brent crossing the $60 a barrel mark and WTI nearing it in December 2017, the overall industry sentiments are definitely getting boosted. With firmer prices, the industry is cautiously but surely pressing the cap-ex accelerator. A general sentiment for the year, which I endorse, is that the spending will rise somewhere in the vicinity of 15-20% over 2017. Leading oil majors will likely increase their exploration capital expenditure by 20-30%, resume drilling in deepwater in a bid to build hydrocarbon-based assets. Added advantage leading to greater probability of rise in upstream activities emerge from the fact that daily rig rates are now at $50,000 to $60,000, down from the $120,000 a few years ago. Deepwater hydrocarbon production, however, will maintain modest level of activities and wait until a barrel of oil starts selling for $65 or more. US shale exploration and production, especially in the Permian Basin will enjoy a lot of attention this year. Nation Oil Companies of Iran, Qatar and Kuwait are going to raise their spending in a bid to strengthen their standing in the power line-up of countries. Midstream spending will continue to rise, and most definitely so in India to cater to the growing domestic petrochemical demand and automobile fuel.

Below is a sneak peek into what the capital spending plans of the players in the global oil & gas arena will look like:
♦ It has been reported that Saudi Aramco intends to raise its 2018 spending by 10%, which is likely to be fuelled by the much awaited IPO slated to be launched in second half of theyear.
♦ Gazprom will be spending a record $22 billion this year, up 13% from last year, in a bid to re-stabilize oil exports and support construction of its pipelines three of Russia’s four corners.
♦ ExxonMobil is among the ambitious players to plan to spend $25 billion this year, up from $22 billion in 2017, mainly to support activities in 30 drilling rigs, up from 20 in 2017.
♦ Following a different trend from the league of top players, Chevron is planning to cut down its capital spending to about $18 billion, down from about $20 billion budgeted for 2017. It, however, plans to scale up investment in US shale plays.
♦ China’s NOC is definitely looking at increasing its 2018 spending to boost natural gas domestic production and to support its aggressive expansion of its Indonesian upstream and downstream assets.
♦ One should not keep high hopes from Royal Dutch Shell in terms of any significant raise in spending plans. It will definitely get better from previous years as it will try to improve its earnings and easing its over $20 billion of near term debts on the back of improving oil price. By and large, the good news is that the worst ever crisis which was plaguing the global hydrocarbon markets seems to be subsiding. The challenge for the oil & gas operators will be to convince the lenders and make them feel confident about how they have or are trying to come out stronger from the struggles of last three and a half years.

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