Upstream capex ready for rebound

Global upstream capital spending should rebound this year, according to IHS Herold director Nicholas Cacchione, author of the research firm’s 2010 Global Upstream Performance Review, released last month. ‘In North America, E&P investment increased 30% in the first half of 2010, which was higher than expected,’ he said. ‘We think this should drive a global investment increase of more than 20% for the year.’ He predicted a more modest capex increase of 10% outside North America.

The latest review shows oil & gas reserves increased 3% in 2009 despite a significant drop in upstream investment. Upstream spending among 224 oil & gas companies fell 23% to $378 billion. Although development spending fell nearly 20% – the first decline in 10 years – total reserves increased 3% and production ticked up 1%, largely due to a 2.2% increase in gas output.

Oil reserves last year rose to 164 billion barrels, reversing a two-year decline. Positive reserve additions accounted for an increase of 8.6 billion barrels, along with 7.9 billion barrels in South American, Central American and Canadian oil sands discoveries. North American unconventional plays and accelerating LNG development in Asia helped push natural gas reserves up 3.7%, despite a record 11.4tcf in negative reserve revisions, IHS Herold said.

E&P companies cut capital spending by 40%, compared to a 9% dip among integrated oil companies. Exploration spending fell 12% to $62.7 billion, but unproved acquisition outlays dropped 71%. The 2% drop in acquisition spending would have been far greater if not for the $20 billion merger of Suncor and Petro-Canada.

‘With the recession and ongoing uncertainty in the market last year, companies put acreage acquisition on hold and seemed to focus on their in-house development opportunities,’ observed Cacchione. ‘This decision, I think, reflected their desires to monetize known holdings that can be brought into production rapidly.’

Lower spending and higher reserves led to a near 50% decrease in reserve replacement costs to $11.41/boe in 2009 and lowered finding and development costs to $12.23/boe. RM

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