Upstream Oil and Gas FIDs Will Likely Increase in 2023

In a statement sent to Rigzone this week, Wood Mackenzie outlined that, according to new analysis from the company, upstream oil and gas financial investment decisions (FID) will likely increase this year.

The statement, which highlighted that $185 billion of total investment and 27 billion barrels of oil equivalent of reserves are up for sanction in 2023, noted that national oil companies (NOCs) will control the largest investment opportunities this year, “taking advantage of huge, discovered resources, while boasting the lowest unit costs”.

In 2023, projects will require an average of $49 per barrel of crude to generate a breakeven 15 percent internal rate of return (IRR), the statement revealed, adding that a weighted average IRR of 19 percent, at $60 per barrel, would be the lowest level since 2018.

“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,” Fraser McKay, Wood Mackenzie’s Vice President and Head of Upstream Analysis, said in the statement.

Greg Roddick, the Principal Analyst of Upstream Research at WoodMac, said in the statement that “short-cycle and small-scale offshore projects will outperform in terms of both paybacks and returns”.

“Long-life liquified natural gas projects are compromised when it comes to IRRs, but their attractive and stable future cash flows will be strategically important,” he added.

McKay highlighted in the statement that most operators will remain disciplined and that carbon mitigation will remain a key part of many FID projects. He added that international oil companies will be focusing largely on higher-cost but higher-return deepwater developments but stressed that “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”.

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

A WoodMac spokesperson told Rigzone that in 2022, the company listed a total of 30 FIDs. These have combined investment of $140 billion and will develop reserves of 18.3 billion barrels of oil equivalent, the spokesperson revealed.

Upstream Mojo

In a statement posted on WoodMac’s website back in January this year, McKay stated that upstream oil and gas “got its mojo back in 2022”.

“Record cash flows restored confidence and repaired balance sheets. For many, there is excitement about the year ahead,” he said in that statement.

“There are economic incentives of course, but a renewed sense of purpose to provide secure and affordable energy – particularly into tight European gas markets – will revitalize motivation,” McKay continued.

In a statement posted on Rystad Energy’s site last month, Rystad announced that the offshore oil and gas sector is set for the highest growth in a decade in the next two years, “with $214 billion of new project investments lined up”.

“Rystad Energy research shows that annual greenfield capital expenditure broke the $100 billion threshold in 2022 and will break it again in 2023 – the first breach for two straight years since 2012 and 2013,” the company said in the statement back in March.

Back in January, Rystad noted in a statement published on its site that it expects the global market for oil and gas contractors to rise to a peak of $1 trillion in 2025 and remain at high levels for several years thereafter.

“Helped by strong growth in the midstream part of the industry to liquefy, transport, and re-gasify natural gas, overall oil and gas spending will stay above $920 billion annually on average for the 2022-2028 period,” Rystad said in that statement.

To contact the author, email andreas.exarheas@rigzone.com