Majors Running With ‘Advantaged’ Project Plans

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The global oil industry is beginning to usher in a new era of upstream projects as those schemes sanctioned before pandemic-driven downturn come online and companies look to their next tranche of new production. These projects are broadly characterized by attributes such as low cost, low carbon footprint, short development cycle, strong access to existing infrastructure and markets and strategic fit within an integrated portfolio — all attributes Energy Intelligence has defined as “advantaged barrels.” More recently, we would add an increasing focus on above-ground risk to the calculation. “Our strategy in oil and gas is to maximize returns and cash flow, creating resilience through lower costs, higher margins and lower operating emissions, focusing on the best barrels,” BP CEO Bernard Looney said, noting he expects upstream margins to grow 20% by 2030. The exit of the majors from Russia following its invasion of Ukraine as well as the retreat from places like Myanmar and onshore Nigeria has shown the majors' appetite for political risk is shifting. “We want to be out of onshore oil, no matter how the macro might perhaps change the outlook for those assets,” Shell CEO Ben van Beurden said of Nigeria. "And that is a case of risk management and appetite for dealing with the challenges onshore.”

Some of these advantaged principles have been pieced into place at existing projects already and will be applied at a much larger scale through phased redevelopments where access to existing infrastructure increases margins. Others are being combined into wholly new development concepts. The results are challenging conventional wisdom about what is possible in an oil and gas development. BP flagged advances in seismic processing, revealing as many as seven previously unseen exploration targets around its existing Thunderhorse hub in the US Gulf of Mexico. In the US, supermajors Exxon Mobil and Chevron are completing production hubs in the Permian Basin that incorporate renewable power and integration with refinery operations. Chevron built 40 tank batteries to process production from its first 800 wells in the Permian Basin. Looking further ahead, Italy's Eni is pioneering a set of fast-track oil, gas and LNG developments offshore Africa that aim to deliver a moderate volume of production as quickly as possible to capture high margins from near-term prices. The Baleine oil discovery could begin to flow through a small early production system later next year — 18 months after discovery. France's TotalEnergies is spending another $1 billion this year on short-cycle oil and gas opportunities, including partnering with BP, Eni and Chevron on the first gas-specific development in Angola to take advantage of capacity at Angola LNG.

The results from this advantaged approach are starting to become evident in the strong performance of the global oil majors, particularly in their upstream divisions. In the first half of this year, crude oil prices averaged $108 per barrel, a level last seen in 2013. But in the second quarter this year, the five global supermajors combined to produce $58.6 billion in net income compared to $22.1 billion in the same period in 2013. Executives credit not only their newfound capital discipline as the difference between the two results but also their refined approach to choosing which projects to develop and how to do it. The new world of upstream oil projects looks different and so far companies like what they see. Eni CEO Claudio Descalzi said his company would look to replicate its concept of modular floating LNG development offshore Congo-Brazzaville in Mozambique to add a second floating unit at Coral in as little as four years, “accelerating the time to market” and “reducing financial exposure." Shell executives estimated that the company’s production had fallen 21% from 2013 levels but at the same time cash flow per barrel was up 74%. By 2026, Chevron plans to more than double its cash flow per barrel compared to 2019 levels, while cutting both methane intensity and Scope 1 and 2 emissions.

Offshore Oil and Gas, Upstream Projects, Corporate Strategy , Capital Spending, Majors, Shale
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