Wood Mackenzie Assesses Future Global Upstream Value at US$2.6 trillion, Whilst Industry Is Shifting Towards 'Volume Plays'
EDINBURGH/SINGAPORE, 12th July 2010 – Wood Mackenzie’s Upstream report entitled ‘Maintaining the pursuit of upstream value’ estimates the remaining worth of international oil company (IOC) upstream portfolios at just over US$2.6 trillion, shared between over 650 companies and 80 countries. In pursuit of further growth, there has been a clear shift towards ‘volume plays’- characterised by huge reserves and comparatively low contractor margins.
Head of Middle East and Asia-Pacific Upstream Research, Iain Brown says, “There is huge remaining growth potential and volume plays are becoming increasingly important to IOC’s value propositions. Companies are facing the prospect of lower margins, as they seek to produce oil and gas from more difficult and less accessible reservoirs. This may be oil sands or tight gas in North America, low margin oil in Iraq or Abu Dhabi, or sour gas in remote parts of the Far East.”
The report attributes one-third of total value to the five largest international companies - Shell, ExxonMobil, Chevron, BP and Total. Shell and ExxonMobil have the most valuable portfolios, estimated at around US$220 billion, although the top five IOCs still lag behind the world’s major national oil companies (NOCs), such as Saudi Aramco, PetroChina and Gazprom.
Brown says, “Some NOCs have broadened their horizons in the last twenty years, successfully competing with their international counterparts. They are now regular, front-line competitors in the world’s major oil and gas provinces, adding to the access challenge for valuable new projects and acquisitions.”
Future expectations of value are dominated by three historical heartlands of oil and gas production – the US, Canada and Russia. The prominence of these countries is the result of three key factors: the scale of resource, political stability and, at least in regard to the US and Canada, fiscal terms which promote development of new production capacity.
There is a clear relationship between the scale of a country’s remaining oil and gas reserves, and the upstream value proposition for IOCs. The Netherlands and the UK are advancing towards resource depletion, but deliver higher values to investors (over US$12 per barrel of oil equivalent). By contrast, Russia and Libya, with tens of billions of barrels nominally accessible to IOCs, offer less than US$3.50 per barrel.
Brown explains, ”Cutting-edge technologies are needed to extract the difficult oil and gas towards the latter stages of field life, or from more challenging reservoirs. Countries in these circumstances tend to offer more attractive terms to attract essential skills and investment to extend production life.”
In conclusion, Brown says, “The upstream industry is evolving rapidly, but change is nothing new for international companies and many opportunities remain for value creation. Investors recognise that the opportunity set is constantly evolving and the shift to ‘volume plays’ is already under way.”