IHS Markit's global upstream outlook

CERAWeek hosted the India Energy Forum in October, 2017, and at the forum, IHS Markit's Vice President of Upstream Oil & Gas Research and Consulting, Paul Markwell, spoke to the crowd about the global upstream outlook.

Mr. Markwell said that upstream players - governments, oil companies, other investors - generally recognize that we are in a paradigm of "lower for longer" prices. As such, a suitable mindset for all players is to focus on innovating to compete on the global cost of oil & gas supply curve. However, competing on that curve has more dimensions than cost and volume alone. It is increasingly important to understand the new dynamics of supply including the time to first production from new investments. North American tight oil and shale gas production, as well as some Middle East production offer "short cycle" investments with rapid production growth and sometimes relatively modest incremental outlay. For many investors, these short cycle barrels can be an attractive alternative to traditional greenfield conventional plays, such as deepwater.

For upstream players to win in this new environment, a sharp focus on cost competitiveness is needed at various levels:

• At a project level, the industry has made remarkable and well publicized gains in driving the attractiveness of unconventionals. But innovation is also alive and well in conventional, deepwater projects. Mr. Markwell showed IHS Markit research on a sample of deepwater projects sanctioned since the end of 2014, which shows that 55% cost reductions have been achieved in projects subjected to redesign, compared to less than 40% reductions across the overall sample.
• At a portfolio level, a re-awakening global Upstream M&A market should help industry players accelerate their efforts to free up debts and channel investments into their preferred areas.
• At a country level, governments also face a more dynamic competitive environment and have an important role play to actively adjust petroleum terms to make the country an attractive venue for new upstream investment.

Looking forward, Mr. Markwell suggested that upstream industry winners will be those players who are best able to:

• Exploit "Super Basins" - large scale mature areas which include a range of short and long cycle opportunities cycle investments in multiple plays including tight rock.
• Specialize- shape their portfolios to compete where they have cost advantage.
• Embrace the next wave of digitalization - notably predictive analytics - to continue to improve capital and operating efficiency.

To see Paul Markwell's presentation in full, please visit our India Energy Forum page.

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Paul Markwell is Vice President, Upstream Oil & Gas Research and Consulting at IHS Markit.
Posted 4 January 2018

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.