Wood Mackenzie predicts a positive outlook for project development with 30 out of the viable 40+ expected to reach final investment decisions (FIDs) in 2023.
But it does not come easy.
WoodMac’s Vice President, Head of Upstream Analysis Frank McKay and Principal Analyst, Upstream, Greg Riddock said that achieving FIDs on oil and gas projects is harder than before.
“Despite a continued uptick in activity since the pandemic nadir of 2020, fewer major projects were sanctioned in 2022 than was expected at the start of the year,” they said.
2023 offers a better outlook, but WoodMac said several FIDs could be delayed and re-evaluated due to cost inflation.
“Most operators will remain very disciplined. A handful of lower-return projects will proceed because of their strategic importance,” the analysts explained.
WoodMac anticipates that National Oil Companies (NOCs) would control the largest investment opportunities. The analyst said that up to US$185 billion of the investment could be committed to develop 27 billion oil-equivalent barrels of reserves.
“NOCs will dominate the year, as they take advantage of huge discovered resources and boast the lowest unit costs,” WoodMac said. International Oil Companies (IOCs) like ExxonMobil, the operator of Guyana’s Stabroek Block, will focus largely on higher-cost, higher-return deepwater developments.
“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,” WoodMac outlined.
Additionally, WoodMac said that projects on 2023 will need an average of US$49/bbl to generate a breakeven 15% internal rate of return (IRR). However, a weighted average IRR of 19% at US$60/bbl, would be the lowest level since 2018.