Thursday 16 January 2020

2019 was a another strong year for offshore exploration and production companies. This was because free cash flo was strong and the industry is entering a new offshore investment cycle. This trend was perhaps best illustrated by the rising offshore project approval activity by operators in 2019. Globally, the amount of oil and gas resources approved for development last year surpassed 20 billion barrels of oil equivalent (boe), the highest level seen since 2011.

Looking at free cash flow (FCF) levels in recent years show 2019 was a quiet a strong year for the offshore sector. 2019 was the third highest year on record while down on the 2018 record of 107.6 billion dollars in 2018 to 89.2 billion dollars in 2019. Globally, the amount of oil and gas resources approved for development last year surpassed 20 billion barrels of oil equivalent (boe), the highest level seen since 2011. Showing that the cash flow situation for offshore players is very robust, underlining that E&Ps have enough cash in hand to invest in new projects after several years of restrained capital expenditure.

What's more the trend can also be reflected when looking at project approval activity in 2019. Which is split by Gas and Liquid. Last year saw the approval of 12.3 billion barrels of liquids projects, along with 8.3 billion boe of new gas projects, thus bringing total approved resources to 20.6 billion boe. The approved volumes in 2019 were 110% higher than 2018, and the highest number since 2011.

Approved offshore greenfield investments (designated for the development of new projects) by year of sanctioning. 2019 again gave a increase in activity. Total greenfield investments approved last year increased by 50% versus 2018. The rise in resources and investments is driven by several large developments such as the large Marjan and Berri expansions in Saudi Arabia. The number though in 2019 are still way down compared to the investment cycle of 2010 to 2014 this can be explained by the fact cost levels within the E&P industry have come down significantly since 2014.

The 15 largest offshore projects approved last year, measured by total greenfield capex. The expansion phase of Saudi Aramco’s Marjan field in Saudi Arabia was by far the largest project approved last year, with close to $12 billion in investments. The second largest project on the list is the first phase of Total’s Area 1 development in Mozambique.Chevron’s Anchor field development in the US is the largest project in the Atlantic region, just ahead of the second phase of Equinor’s Johan Sverdrup field in Norway.

The rising tide of approval activity has carried with it an increase in offshore investments. Total offshore capex grew by 5% compared to 2018, with a 7% rise in deepwater spending and a 3% boost in investments on the continental shelf. In 2020 offshore investments are expected to grow 8%, with deepwater up 12% and shelf spending up 2%.

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