Offshore Energy Enters New Investment Cycle

January 14, 2020

Graph: Rystad Energy
Graph: Rystad Energy

The offshore oil & gas industry is witnessing the beginning of what could be a new investment cycle as worldwide activity is ramping up.

Rystad Energy, the energy research and business intelligence company, said  that offshore investments would climb 8% in 2020, driven by a 12% surge in deepwater expenditure, while growth in shelf spending slows to 2%.

"Free cash flow remained strong and telltale signs have emerged that we are entering a new offshore investment cycle. This trend was perhaps illustrated most profoundly by the rising swell of offshore project approval activity by operators in 2019," said Espen Erlingsen, Head of Upstream Research, Rystad Energy.

Globally, the amount of oil and gas resources approved for development last year surpassed 20 billion barrels of oil equivalent (boe), the highest level seen since 2011, he said.

A quick look at free cash flow (FCF) levels in recent years confirms that 2019 was a strong year for the offshore sector. The total offshore FCF from all public E&P companies globally shows that 2019 was the third best year on record, with FCF reaching nearly $90 billion. This represented a slight reduction compared to 2018, but compares very favorably with the previous investment cycle from 2010 to 2014.

This shows that the cash flow situation for offshore players is very robust, underlining the point that E&Ps have enough cash in hand to invest in new projects after several years of restrained capital expenditure.

The rising tide of approval activity has carried with it an increase in offshore investments in 2019. Total offshore capex grew by 5% versus 2018, with a 7% rise in deepwater spending and a 3% boost in investments on the continental shelf.  

For 2020, offshore investments are on track to grow 8%, with deep-water up 12% and shelf spending up 2%. This illustrates that a new offshore investment cycle is in the making.

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