US$185 billion of total investment and 27bn boe of oil reserves up for sanctions in 2023

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  • Upstream operators to focus on capital discipline and carbon mitigation

With up to US$185 billion of investment committed to developing 27 billion barrels of oil equivalent (boe), upstream oil and gas financial investment decisions (FID) will likely increase this year, according to Wood’s latest industry analysis.

“Achieving FID on oil and gas projects is harder than it used to be, but with fewer sanctioned in 2022 than was expected, we believe we will see a slight uptick in activity this year, with over 30 of the 40 most viable projects likely to reach this milestone,” said Fraser McKay, vice president, Head of Upstream Analysis for Wood Mackenzie. “Most operators will remain disciplined and carbon mitigation will remain a key part of many FID projects.”

Further breakdown of the report showed that the National oil companies (NOCs) would control the largest investment opportunities this year, taking advantage of huge, discovered resources, while boasting the lowest unit costs. The report also showed that there was a slight decrease from the average unit development cost of US$7/boe in 2023 from what was recorded in 2022.

“International oil companies (IOCs) will be focusing largely on higher-cost but higher-return deepwater developments,” said McKay. “All will be acutely aware of how oil and gas project sanctions are playing out in the public domain and the scrutiny to which their associated emissions will be subject.”

It further noted that in 2023, projects would require an average of US$49/barrel of crude (bbl.) to generate a breakeven 15% internal rate of return (IRR). Adding however that a weighted average IRR of 19%, at US$60/bbl, would be the lowest level since 2018, as rapid paybacks will be a key economic indicator, with the average for this year’s projects at nine years.

“Short-cycle and small-scale offshore projects will outperform in terms of both paybacks and returns,” said Greg Roddick, Principal Analyst of Upstream Research. “Long-life liquefied natural gas (LNG) projects are compromised when it comes to IRRs, but their attractive and stable future cash flows will be strategically important.”

It also noted that the class of 2023 emissions intensity of 19 kgCO2 boe was only just below the global onstream average of 22 kgCO2 boe, something similar to that of the Class of 2022.

“Advantaged deepwater oil and shelf projects will outperform on emissions, but LNG, sour gas and some onshore projects to require mitigation measures”, Greg Roddick said.

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