Capital spending by oil and gas companies on the rise in 2018

capital spending
After declining steadily since oil prices crashed in 2014, capital spending in the oil industry is expected to rise this year. Anadarko photo.

A number of oil majors say they will boos their capital spending in 2018 after oil topped $70/barrel in January. Anadarko photo.

Capital spending fell to $200 billion in 2016

According to a report by Reuters, more global oil and gas companies expect they will boost their capital spending in 2018 after prices and confidence rose in recent months.

With oil prices rising to over $70/barrel in January, DNV, a technical adviser to the energy industry, reported that 66 per cent of 813 senior oil and gas professionals surveyed said their company would maintain or boost capital spending in 2018, compared to 39 per cent in 2017.

The survey also found confidence that the industry would grow was up to 63 per cent from 32 per cent last year.

In 2016, a number of companies, including global majors like BP and Shell, cut their capital expenditures and costs after oil prices hit 12 year lows.  Consultancy firm McKinsey told Reuters that capital spending fell to $200 billion from an all-time high of about $520 billion in 2014.

Since then, Brent has slowly recovered, aided by the OPEC supply cut agreement which began at the beginning of 2017 and is set to expire at the end of this year.

“Our research indicates that the oil and gas industry is becoming more confident that its successful focus on cutting costs and building new efficiencies into the value chain will last,” DNV Oil & Gas Chief Executive Liv Hovem told Reuters.

“Intentions to increase capital and innovation spending in 2018 come alongside a clear signal that oil and gas industry costs will not return to pre-2014 norms,” she said in a statement.

Half of those surveyed said they would maintain efforts to boost cost control measures in 2018 and almost two-thirds say these changes will be permanent.

The DNV survey said 37 per cent believe the price of oil is a barrier to growth this year, down from 64 per cent last year.

In trading on Thursday, oil prices topped the $71/barrel mark, the first time since December 2014.



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