By Sebastine Obasi

FINAL  investment decisions (FID) are expected to double globally in 2017 while exploration and production spending will increase for the first time since 2014, according to Edinburgh, United Kingdom-based Wood Mackenzie Limited’s global upstream outlook.

The research and consulting firm sees confidence beginning to return to the industry, with exploration and production, E&P, spending going up by 3.0 percent to $450 billion, though still 40 percent below the 2014 level and costs are expected to decline marginally.

Wood Mackenzie noted that capital expenditure deflation has averaged 20 percent over the past two years. With service sector margins thin, the firm believes there’s now only room for small reductions and capital costs are expected to fall by an average of 3-7 percent.

United States lower 48 spending is set to rise 23 percent to $61 billion, with upside if oil prices rise markedly and US independents are emboldened by a Trump presidency. Tight oil and the Permian basin in particular is expected to lead the way, distinguished by low breakevens, scale, and flexibility.

Wood Mackenzie predicted the number of global FIDs will rise to more than 20 in 2017, compared with just nine in 2016. While it’s still short of the 2010-14 average of 40 per year, the new projects are generally smaller and more efficient, with capital expenditure per barrel of oil equivalent averaging just $7/bbl, down from $17/bbl for the 2014 projects.

Internal rates of return

“Companies are expected to get more bang for their money as development incremental internal rates of return (IRR) will jump from 9 percent to 16 percent, comparing 2014 to 2017,” said Malcolm Dickson, a principal analyst for upstream oil and gas for Wood Mackenzie.

“This is in part a result of a shift in capital allocation away from complex megaprojects towards smaller, incremental projects in the Canadian oil sands and deep water. Nowhere is the mantra ‘doing more with less’ more evident than onshore US,” Dickson added.