Investment

Billion dollars (nominal)

800

600

400

Global upstream oil and gas investment and cost-adjusted investment

-12% vs 2014 peak

At nearly USD 480 billion in 2018 and with a rise expected in 2019, upstream oil and gas investment has edged higher over the past three years, but remains more than one-third below the peak level seen in

2014. The sharp decline reflects in part a slowdown in new field development amid a more challenging oil price environment, with low levels of new conventional oil and gas projects being sanctioned for development over 2016-18, alongside a collapse in exploration spending.

These investment trends also reflect renewed efforts by the industry to keep upstream costs under control. While recent increases in upstream activity have put some upward pressure on costs, a combination of continued overhang in the market for some services and equipment, consolidation in the service industry, and increased uptake of digital technologies to improve productivity has limited cost inflation in the sector. Adjusted for declining upstream costs, the overall reduction in investment activity is less stark – the 35% reduction in spending from 2014 to 2018 turns into a much smaller 12% fall in actual activity levels.

The new watchwords for the upstream industry are capital discipline and careful project selection. Break-even prices for sanctioned projects fell by almost 50% over 2014-18 (aided by cost deflation), before rebounding in 2019 by 15-20%, mainly due to more and larger projects, as well as more complex developments (e.g. offshore).

Offshore project approvals are making a comeback. After several years of final investment decisions for smaller-sized offshore projects, decisions in 2019 were oriented towards fields with larger reserves (the highest overall reserves approved since 2013) and higher peak production (also the highest since 2013). In addition, companies approved numerous small brownfield projects in 2018-19 at a low development cost, which will help sustain output from existing offshore facilities.

Companies continue to acquire and divest assets, optimising their portfolios in an effort to meet financial objectives and respond to pressures from investors. Generally, they have disposed of mature non-core assets or more “difficult” assets such as Alaskan reserves, Canadian oil sands or reserves with unfavourable fiscal terms.