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Upstream players grapple with uncertainty, Wood Mackenzie says

JAKARTA ( – The oil and gas industry is facing a challenging year. Oil prices remain volatile, and uncertainty remains about whether prices will recover from around US$50 per barrel.

Across the upstream sector, companies are considering their next investments, while weighing up how to remain profitable in the current climate.

To gauge the state of the sector, Wood Mackenzie asked its client base to share their thoughts on a number of key themes, including the expecations around the oil price, investment in mergers and acquisitions as well as capital expenditure, industry’s priority for 2017 and long-term growth options.

The responses were analysed to give a comprehensive view of how the sector’s key players view the future.
Martin Kelly, Wood Mackenzie’s Head of Corporate Analysis, said: “The industry is very cautious right now and risk appetite is low. The upstream sector’s key priorities for 2017 include protecting the dividend and strengthening balance sheets.”

“There is a clear consensus -that oil prices will be in the US$50-60/bbl range this year (80% of respondents), while 75% think it will be in the US$60-80/bbl range in 2020, which, if correct, will generate significant free cashflow for the industry,” he added.

Climate change is a key issue, with 75% of the more than 170 respondents saying that the best way for the industry to respond to the challenge it represents is to either reduce carbon footprints or increase exposure to renewables.

The survey also found that, on balance, respondents expect investment in M&A, exploration and capital spending to rise this year. However, only 25% of our survey’s respondents believe that frontier exploration or corporate M&A will deliver the best returns this year. Uncertainty remains about service costs, with respondents split almost equally over whether they will rise or not in 2017. (*)

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