Telltale signs have emerged that the offshore oil and gas industry is entering a new investment cycle, according to Espen Erlingsen, the head of upstream research at Rystad Energy
“This trend was perhaps illustrated most profoundly by the rising swell of offshore project approval activity by operators in 2019,” he said.
Globally, the amount of oil and gas resources approved for development last year surpassed 20bn boe, the highest level seen since 2011.
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. This shows that 2019 was the third-best year on record, with FCF reaching nearly US$90bn.
This represented a slight reduction compared to 2018 but compares very favourably 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 five per cent versus 2018, with a seven per cent rise in deepwater spending and a three per cent boost in investments on the continental shelf.
For 2020, offshore investments are on track to grow eight per cent, with deepwater up 12 per cent and shelf spending up to two per cent. This illustrates that a new offshore investment cycle is in the making.
