Oil companies may boost E&P spending after 2 years of declines
LONDONJan 10, 2017 - 12:00 am GMT+3
Jan 10, 2017 12:00 am
Global oil and gas companies are expected to raise exploration and production (E&P) spending in 2017 by 7 percent, marking the first increase in three years, Barclays said yesterday.
Oil prices have recovered after a more than two-year slump caused by a glut due to U.S. shale oil flooding the market. Prices have risen about 21 percent since the OPEC, which accounts for a third of global oil output, signed an agreement in November to curb supply.
Brent crude futures were down 2.03 percent at $55.94 a barrel at 1214 GMT (7:14 a.m. ET) on Monday. Prices had fallen to a more than 12-year low of $27.10 last January.
"With OPEC putting a floor on oil prices, operators have greater confidence to drill and complete, although the early stages of the recovery will be uneven," Barclays analysts wrote in a report.
Barclays also said it expects North American oil companies to lead the spending growth with a 27 percent jump. Production, however, is expected to fall as higher service costs are likely to dilute the effect of a larger budget, the brokerage said.
International spending is expected to increase 2 percent, according to Barclays' survey of 215 global oil and gas companies. The survey was conducted when Brent was trading at about $55 a barrel and WTI at $50 a barrel.
Spending on offshore projects is expected to fall 20-25 percent in 2017, compared with estimates of a 34 percent fall in 2016.
Meanwhile, Russia cut its oil production in early January by around 100,000 barrels per day (bpd) from the previous month after an agreement with OPEC to cap global crude output, two sources from the energy sector told Reuters on Monday.
Russia's oil and gas condensate output averaged 11.1 million barrels per day (bpd) in the period from Jan. 1 to Jan. 8, according to the two sources. This was down from 11.21 million bpd in December and October's level of 11.247 million bpd, a starting point for output reduction agreed with the Organization of the Petroleum Exporting Countries.
Russian Energy Minister Alexander Novak had said the targeted level of Russian output was 10.947 million bpd after the production cut deal. He also said that Russia plans to reduce oil output by 200,000 bpd in the first quarter and reach the cuts of 300,000 bpd thereafter, as agreed with OPEC last month.
Some other countries, including Saudi Arabia, the world's top oil exporter and biggest OPEC producer, have also reduced their output.
Saudi Arabia cut oil output in January by at least 486,000 bpd to 10.058 million bpd, fully implementing OPEC's agreement to reduce output, according to a Gulf source familiar with Saudi oil policy.
Many analysts still expect Russian oil production to grow in 2017 overall and reach a record high due to new fields coming on line.
Moreover, Iran is reported to be capitalizing on the OPEC output cut to sell millions of barrels. Iran has sold more than 13 million barrels of oil that it had long held on tankers at sea, capitalizing on an OPEC output cut deal from which it is exempted to regain market share and court new buyers, according to industry sources and data.
In the past three months, Tehran has sold almost half the oil it had held in floating storage, which had tied up many of its tankers as it struggled to offload stocks in an oversupplied global market.
The amount of Iranian oil held at sea has dropped to 16.4 million barrels, from 29.6 million barrels at the beginning of October, according to Thomson Reuters Oil Flows data. Before that sharp drop, the level had barely changed in 2016; it was 29.7 million barrels at the start of last year, the data showed.
Unsold oil is now tying up about 12 to 14 Iranian tankers, out of its fleet of about 60 vessels, compared with around 30 in the summer, according to two tanker-tracking sources.
The oil sold in recent months has gone to buyers in Asia including China, India and South Korea and to European countries including Italy and France, according to the sources and data. It was unclear which companies bought the oil.
Iran is also looking to use the opportunity to push into new markets in Europe, including Baltic and other central and eastern European countries, said separate oil industry sources, though it was not clear if any oil had been sold there.
About the author
Research Associate at Center for Islam and Global Affairs (CIGA) at Istanbul Sabahattin Zaim University