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Upstream Spending Will Rise To $485bn In 2023

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Over the past three years, the majority of U.S. energy companies have avoided spending big to expand production in the aftermath of the 2020 oil crisis, prioritising returning more cash to shareholders in the form of dividends and share buybacks.
Most oil and gas companies have only announced small increases in their capital spending for the current year, and also plan to grow production modestly.
But this does mean that these companies won’t try to capitalise on oil prices that remain at multi-year highs.
In its 2023 outlook, Energy Intelligence notes that global upstream capex will hit $485B in the current year, good for 12% Y/Y increase and a near 30% recovery from the 2020 trough.
The energy expert says that spending is unlikely to hit the $700 billion-plus level seen during the 2013-2014 peak in this decade, with most companies preferring to focus on the most advantaged “barrels’’ i.e. lower cost, lower carbon projects with faster timelines. NOCs, large independents and western majors are returning to advantaged offshore plays including the Guyana Basin, Brazil, Gulf of Mexico, North Sea and West Africa–the regions also expected to drive the lion’s share of non-OPEC growth.
A number of oil and gas majors have announced bigger-than-average capex hikes for 2023 and beyond. Last month, Chevron Corp. (NYSE: CVX) announced that FY 2023 capital spending budget will clock in at $17B, more than 25% from expected spending in 2022 and at the top end of its $15B-$17B medium-term range.
The company said that upstream capex includes more than $4B for Permian Basin development; ~$2B for other shale and tight assets and ~$2B to go into projects that lower carbon emissions or increase renewable fuels production capacity, more than double the 2022 budget.
Although Chevron’s spending for 2023 will be considerably higher than capital spending in the 2020-21 pandemic years, it’s still much lower than the $30B annual average of the 2012-19 period.
“Our capex budgets remain in line with prior guidance despite inflation,” Chairman and CEO Mike Wirth said.
Chevron’s peer ExxonMobil Corp. (NYSE: XOM) has not announced a drastic increase in spending, but has said that its capital spending for 2023 will be closer to the top end of its annual target of $20B-$25B, a level it expects to maintain through 2027.
Exxon says that more than 70% of its capital investments will be deployed in the U.S. Permian Basin, Guyana, Brazil and LNG projects across the globe.
These investments will help increase the company’s upstream production by 500K boe/day to 4.2M boe/day by 2027. Exxon also unveiled plans to boost spending on lower emission projects by 15% through 2027 to ~$17B through 2027.
Exxon also plans to expand its stock buyback plan to $50B through 2024, including $15B in 2022 So, where will all that money come from? Exxon expects to “double earnings and cash flow potential” by 2027 compared to 2019, and also expects to deliver ~$9B in structural cost savings by year-end 2023 from 2019 levels.
Meanwhile, Canada’s third-largest crude oil and natural gas producer Cenovus Energy (NYSE: CVE) has announced that it expects to spend C$4B-C$4.5B in FY 2023, higher than estimates of C$3.3B-C$3.7B for 2022, including ~C$2.8B of sustaining capital for maintaining base production and support operations.
Cenovus says it expects to direct C$1.2B-C$1.7B towards optimisation and growth, including construction of the West White Rose project in Atlantic Canada.
Cenovus has also guided for production of 800K-840K boe/day in the current year, an increase of more than 3% Y/Y, including oil sands production of 582K-642K boe/day and conventional output of 125K-140K boe/day.
Meanwhile, the company expects total downstream crude throughput to clock in at 610K-660K bbl/day, up nearly 28% Y/Y.
Back in June, Saudi Aramco revealed plans to keep raising capital expenditure until the mid-2020s as part of its strategy to grow oil production capacity to 12.3 million barrels per day by 2025 and to 13 million b/d by 2027.
To support production growth, Aramco plans to allocate capex by up to $50 billion, which will then increase from 2023 until 2025.
Brazil’s oil and gas supermajor Petróleo Brasileiro S.A. or Petrobras (NYSE: PBR) has announced that it will increase 2023-2027 investments by about 15% to $78 billion over the company’s 2022-2026 projected spending. Of the $78 billion planned for capex, 83% or $64 billion is earmarked for E&P activities while 67% of the E&P capex budget will go to pre-salt activities.
The company also plans to boost spending to reduce carbon emissions to ~6% of the total compared with 4% in the previous plan, and will see its  decarbonisation fund  more than double the current $248M.
Meanwhile, Brazilian mining giant Vale S.A.(NYSE: VALE) has announced plans to increase capex  to US$6bn in 2023 from US$5.5bn in 2022 while exploration expenses are expected to reach US$350mn in 2026 compared to $180 million for 2022.
Vale says it expects iron production to only increase slightly to 320 million tonnes in 2023 compared to 310 million tonnes in the current year, but expects production to exceed 360 million tonnes by 2030.
Meanwhile, copper production is expected to jump to 335K-370K tons in 2023 from – 260K tons this year while nickel production is expected to exceed 300K tonnes from ~180K tons in 2022.

By: Alex Kimani
Kimani Reports for Oilprice.com

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FG Admits Adjusting Petrol Pump Price …… Blames Scarcity On Smuggling

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The Federal Government has admitted to adjusting the pump price of petrol to cater for the impact of high AGO diesel price on the cost of product transportation across the country.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), which made this known in a statement, Friday, also said it was making special provision of diesel to marketers at a reduced price.
Recall that the Minister of State for Petroleum Resources, Chief Timipre Sylva, had in the wake of the increase in the price of petrol at filling stations, said the Federal Government did not give approval for such action.
In a statement titled, “Update on the Supply and Distribution Of Premium Motor Spirit (PMS) Nationwide”, the NMDPRA attributed the current fuel scarcity in the country to the activities of smugglers, “who divert PMS meant for Nigerian market to neighbouring countries where PMS prices are significantly higher than Nigeria’s regulated price.”
The authority said it was engaging and collaborating with the Nigeria Customs Service to address this issue.
It said the price arbitrage between Nigeria and neighbouring countries has continued to grow due to inflation and the regional impact of the Russia-Ukraine conflict on the global energy value chain including international freight rates and coastal vessels charter rates.
The Authority reassured of petrol sufficiency, with available volume of over 1.6 billion litres as of 26th January 2023 both on land and marine, while the NNPC has additionally made firm commitment to supply more volume of PMS for the months ahead to guarantee national energy security and nationwide availability at the government regulated price.
According to the statement, “NMDPRA and key stakeholders including NNPC have put various measures in place to address the issues, including: Modest adjustment in the cost of product transportation to cater for the impact of high AGO price on transporters, while making special provision of diesel to marketers at a reduced price; Automation of products sales interface; Emplacement of a monitoring system in collaboration with government security agencies for distribution of products to retail outlets; Extended operating hours both at the loading depots and some selected filing stations as well as Rehabilitation of critical fuel distribution road network through federal government’s tax credit scheme by the NNPC amidst regular stakeholders’ engagements; among others.”
According to the agency, the ongoing government effort to rehabilitate strategic Nigerian roads ahead of the rainy season has necessitated rerouting of tanker trucks conveying petroleum products to alternative roads, therefore increasing transit time and associated cost of product transportation.
It also said, “We have reinforced our monitoring teams and appropriate sanctions to checkmate the activities of erring marketers who are distorting our planned product flow to designated outlets in order to profiteer from price arbitrage have been emplaced.

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Equinor To Divest $1bn Stake In Nigeria’s Agbami Oil Assets

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As the gale of International Oil Companies (IOCs) divestment from Nigeria deepens, Norwegian energy firm, Equinor, has hired Standard Chartered to assist in the sale of its major stake in an offshore oilfield in Nigeria.
The potential sale of Equinor’s 20 per cent stake in the Agbami field offshore Nigeria could fetch up to $1 billion, according to Reuters’ sources.
Equinor is reportedly looking to sell its Nigerian oilfield stake to focus on more profitable and newer projects, the sources said.
U.S. supermajor, Chevron, is the operator of the Agbami Field, which lies 70 miles off the coast of the central Niger Delta region and spans 45,000 acres. Chevron has a 67.3 per cent interest in the field, whose production has dropped in recent years. To offset field decline, infill drilling continued in 2019, Chevron says.
In 2020, the field produced 29,000 barrels of oil equivalent per day (boepd), down from 36,000 boepd in the previous year, according to our source.
The rumored sale makes Equinor the latest oil major looking to either exit or downsize operations in Nigeria.
ExxonMobil is trying to sell shallow water assets offshore Nigeria, but President Muhammadu Buhari made a U-turn in August on his initial approval of the asset sale to Seplat after the Nigerian Upstream Petroleum Regulatory Commission, NUPRC, declined to approve the deal.
TotalEnergies and Shell are also looking to sell assets in Nigeria. In May 2022, TotalEnergies launched the sale of its 10 per cent stake in a joint venture, SPDC.
Shell said as early as in 2021 that it did not see its upstream oil operations in Nigeria as compatible with its strategy to become a net-zero energy business.
Last year, Shell put on hold the sale of its onshore assets in Nigeria to comply with a Nigerian Supreme Court ruling to wait for the outcome of an appeal regarding an oil spill in 2019.

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2023, Another Strong Year For Oil Industry

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Last year was a good year for the oil industry. Despite predictions of its looming demise as renewable energy leads to electrification that in turn leads to the death of oil, fossil fuels were the stars of the year, with demand for all, including coal, notably rising.
Meanwhile, opposition to Big Oil grew louder and protests turned more extreme, with activists gluing themselves to streets and buildings, and vandalizing world-famous works of art in order to raise awareness of climate change.
Oblivious to this rise in the amount of activism, Big Oil went on to rake in record profits thanks to higher prices for the commodities it produces.
According to Reuters, Big Oil majors will report combined earnings of close to $200 billion for 2022, with many of the supermajors booking record quarterly profits during the year thanks to the combination of strong demand for energy and limited supply.
The industry also had a chance to reduce debt, thanks to the strong performance of its products last year.
Per Reuters, the combined debt of Big Oil has fallen to $100 billion, which is the lowest in 15 years and down by more than 50 percent from 2020, when it reached more than $270 billion as companies borrowed to survive.
But it’s not all smooth sailing from here on out. First, there is the windfall profit tax that the EU and the UK decided to impose on energy companies in order to generate some money for its energy aid programs.
Shell said it expected the effect of the UK and EU windfall taxes will cost it $2.4 billion. It also said it may have to reconsider investment plans for the North Sea in light of that hit.
Meanwhile, despite political opposition to developing more oil and gas reserves in the UK, more than 100 bids were submitted this month for new exploration in the basin.
French TotalEnergies also said it would take a substantial hit from windfall taxes in the UK and the EU. According to the supermajor, it would come in at about $2.1 billion. As a result, the company said it will reduce its investments in the North Sea by a quarter, noting that the levy did not provide for any adjustments in case oil and gas prices fell.
Meanwhile, oil and gas prices did fall. Right now, oil is trading at around the same level it was trading a year ago and natural gas prices have fallen substantially in both Europe and the United States—its biggest supplier.
“The energy industry operates in a cyclical market and is subject to volatile commodity prices,” Jean-Luc Guiziou, TotalEnergies’ British head of exploration and production, told the FT this month.
“We believe that the government should remain open to reviewing the energy profits levy if prices reduce before 2028.”
Exxon took it a step beyond criticism, filing alawsuit against the European Union to get it to drop the windfall tax. The company argued that the tax is counterproductive, would discourage investments and undermine investor confidence.
Yet Big Oil has some big investment plans, just not for Europe. Exxon and Chevron, per Reuters, plan to spend 10 percent more this year than they did last year, to the tune of a combined $41 billion.
BP will be spending more on its U.S. shale and Gulf of Mexico operations even though European supermajors as a whole are expected to be more cautious with their money because of the windfall taxes. But they will continue spending heavily on low-carbon projects.
“The European majors appear much more attractively valued than the U.S. majors on our estimates,” HSBC said in a recent note quoted by Reuters. It is among banks that predict stronger share performance for European Big Oil majors after last year U.S. supermajors ruled the stock market.
If investment in low-carbon projects is the guarantee for stronger share performance, then HSBC is right.
Indeed, pressure is growing on the oil industry to set itself more stringent emission-reduction targets and make stronger commitments to decarbonize.
This pressure is unlikely to let up this year as governments in the EU, the UK, and the U.S. double down on their climate change plans, too.
Chances are that 2023 will be another strong year for the oil industry simply because those companies came in strong into the new year and demand for oil and gas is not expected to fall—on the contrary.
The EU will need to buy more gas to refill its storage and it will continue using oil products that it no longer buys from Russia. China is reopening and most observers expect a rebound in oil and gas demand to come sooner rather than later. Even the U.S., for all its green ambitions, is unlikely to stop being the biggest consumer of oil in months. The immediate future of Big Oil is certainly bright.
Slav reports for Oilprice.com

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