Steady oil prices
OPEC’s decision to extend current cuts through to the end of 2018 was seen by many as being inevitable to support prices in the near term.
In the short-term, the cuts will put the market into an undersupply situation, eroding current stockpiles and support prices through 2018.
But the nascent recovery is still fragile. Whether the oil price breaks out of the $40-60/bbl range for sustained periods in 2018 remains in question.
Cash over production
Investors in the US Shale industry are running out of patience and 2018 should see the industry concentrating on sustainable business models prioritising generating cash over growing production.
We are already seeing a slowdown in advances in drilling and completion performance improvement, increased costs and holdups in the supply chain, particularly in well completions.
Production growth for the US is likely to disappoint the most optimistic forecasters, unless oil prices break through the $60/bbl ceiling.
Uncertain long-term supply demand balance
The lack of major project sanctions since the 2014 price crash will start to impact supply in the medium term. If demand increases as many expect, then the market could be short in the early 2020s and prices will rise in anticipation.
Further into the future, the range of forecasts for oil and gas demand is huge making long term planning challenging.
Meanwhile financial investors continue to lean towards the largest oil companies, attracted by their dividends, seeing smaller, faster growing E&Ps as too much of a risk until a bull market in oil becomes established.
Continued re-positioning of portfolios
Operational efficiency gains seem to be slowing and next year will see the Majors continue to re-position their production portfolios towards the lowest cost of supply. They will continue to secure options for long-term gas, and continue to move into renewables.
Improved exploration performance
2017 saw low exploration drilling and spending and improved success rates and performance. Industry has become much better at selecting wells and consequently, finding costs have been at their lowest for 10 years.
This low level of drilling will continue into 2018 – 60 per cent less than 2014, focused on selective high impact and near-field exploration.
Areas to watch for exploration
Exploration drilling will shift towards South America, especially Guyana, Suriname and Brazil, with more than 15 high impact wells planned.
Africa will see continued frontier drilling, for instance in unproven basins off Morocco, Namibia and South Africa. Drilling will also continue in Mauritania/Senegal following up the Tortue gas play.
Despite disappointment in 2017, the Barents will have another busy summer – Statoil plans to drill at least another five exploration wells.
And after the giant Zohr gas discovery, the Eastern Mediterranean, especially Cyprus, will see more than five follow up wells.
Keith Myers, president, research, Westwood Global Energy Group