The year 2021 has started out on a positive note for oil and gas companies – in fact, this might be the best year yet in terms of generating cash for the industry, Rystad Energy said in a report. Oil prices have strengthened considerably over the last 12 months and are currently trading in the $60s. Simultaneously companies are continuing to focus on capital discipline, have made only a modest increase in investments this year, following the 30% drop last year. The oil price growth and investment restraint have resulted in a considerable increase in free cash flows (FCF) for the oil and gas producers.
“Last year, cash from operations dropped almost $200 billion or around 35%. This implies that the companies had less cash available to finance new activity and pay out cash to their owners,” Rystad Energy said. “As a result, investments also dropped last year, falling by almost $110 billion or around 30%.”
This year, the cash from operations is expected to make a comeback, and in Rystad Energy’s base case with Brent price at $54 per barrel (bbl), the cash from operations for public companies is expected to reach around $500 billion, an increase of more than 30% compared to last year.
“However, the cash going into investments is not expected to recover this year and is likely to continue at the same level as last year,” the Norway-based consultancy group said.
Regardless of energy transition scenarios, Rystad Energy expects global oil demand will peak at 102 million barrels per day in 2028, before declining to about 62 million bpd by 2050. Significant, however, is that available supply falls short of meeting this demand. Therefore, exploration of frontier basins is key – and it comes with risks.
“We have analyzed the risks and impact associated with frontier exploration based on multiple parameters, including the petroleum system, environmental and political factors, as well as interest – or lack thereof – from companies,” Rystad Energy stated.
Guyana’s low breakeven prices, high quality crude and favourable investment climate have made it a preferred destination for deepwater exploration and production, and this is continuing unabated, led by U.S oil major ExxonMobil.
The oil major has already found more than 9 billion barrels of crude and is gunning for more, not just at the prolific Stabroek Block, but at its adjacent acreages, such as the Canje Block where a three-well programme for 2021 is already underway.