Average capital expenditure on offshore projects in the next two years is set to double over 2017 and 2018 figures, according to energy market analysts
Average capital expenditure on offshore projects in the next two years has the potential to double over 2017 and 2018 figures, according to energy market analysts.
Rystad Energy’s London office chief Markus Nævestad told the opening session at the 2019 Offshore Support Journal Conference & Awards in London that record high cash flows in the exploration and production (E&P) sector point towards increased capital expenditure over the next few years.
“2018 was a record year for E&P companies, leaving them with US$600Bn in free cash flow after investments,” he said.
This free cash flow remains even factoring in continued, albeit relatively constrained, volatility in the crude price index, according to Rystad’s calculations.
“If you believe in a US$50 per barrel price, the free cash flow after investments will be around US$400Bn per year, which, then the oil companies will have to do something with.”
Moreover, Mr Nævestad said his firm sees a clear correlation between high levels of operational cash flow and capital expenditure.
After the precipitous plummet in 2015-2016 and flat numbers in 2017-2018, Rystad foresees a significant bump in 2019 and beyond.
“2016 was a really record-low year for the offshore industry. [Capex] nearly doubled in 2017, but it stayed flat last year,” Mr Nævestad said.
“The average committed capex for the next three years, we expect to be in the range of US$130Bn, a significant uptick from the last two years.
“For the offshore market, we expect that to turn this year and continue to be a positive story through 2021, at least,” he said.
In the last upturn, floaters and fixed projects represented around 80% of capex commitment, according to Rystad’s data. The subsea sector represented about 19%.
In this upturn, they predict that subsea will take more, at 26%.
The reason is operators are turning to smaller solutions, driven by the fact that discoveries over the last few years have been smaller than expected.
And while markets turn around in 2019, the more meaningful growth, it is believed, will come in 2020.
For investments specifically committed to exploration, Rystad expects an uptick from US$22Bn in 2018 to US$27Bn this year, and then figures hovering in the low US$30Bns going forward.
Ultimately, even though the market shows the possibility of significant growth, Mr Nævestad said, it will not return to the peak levels of 2014.