13 July 2016, Sweetcrude, Lagos – Two projects worth $45 billion announced recently show the world’s largest oil companies are regaining the confidence to make big investments, emboldened by rising crude prices and low costs that promise to trigger more expansion ahead, according to Bloomberg.
*Offshore oil rig.
Chevron Corporation gave the go-ahead for a $37 billion expansion in Kazakhstan, the industry’s biggest undertaking since crude started tumbling two years ago. BP Plc signed off on the $8 billion expansion of a liquefied natural gas plant in Indonesia.
Two more big projects are likely to get a green light this year, according to industry consulting firm Wood Mackenzie Ltd. and Jefferies International Ltd. – BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Coral LNG development off Mozambique.
Crude’s recovery from a 12-year low and a decline in project expenses have emboldened executives to start spending again after cutting more than $1 trillion in planned investments amid sinking earnings. While protecting balance sheets is important, explorers need to at least begin a new phase of investment in exploration and production to ensure future growth.
“We have seen a recent pick-up, demonstrating that projects deemed strategically important are still going ahead,” said Angus Rodger, a Singapore-based principal analyst for upstream research at Wood Mackenzie. He expects about 10 decisions on midsize to large projects this year from fewer than 10 last year, though still well below the annual average of 40 before oil crashed.
While the price slump hit profit hard, it has also driven down costs of services and equipment, including rigs. Drillers have renegotiated contracts to get better deals from suppliers as reduced demand creates a buyers’ market.
BP has knocked more than half the cost off its Mad Dog Phase 2 project. Estimated at $20 billion four years ago, it’s now expected to cost less than $9 billion, Chief Executive Officer Bob Dudley said last month. Rig-rental rates are likely to stay down because of an oversupply, while low steel prices are reducing the cost of other equipment, he said.