Highlights From The Article:
"... After a year of recovery in 2021, following the crash and crisis of 2020, the oil and gas industry is generating record or near record cash flows these days.
However, cash flows are being allocated to higher shareholder payouts in the form of share buybacks and raised dividends instead of significant increases in drilling activity.
... the U.S. shale patch ... has abandoned the relentless drilling and investing all the cash flows (and even borrowing to invest) in new wells.
Shale-focused U.S. producers, as well as international majors and national oil companies (NOCs), continue to be careful with upstream spending, even if oil prices have held above $70 per barrel for most of the past six months.
According to Wood Mackenzie, capital discipline will still be a major theme in upstream oil and gas in 2022.
Total global upstream investment is set to increase by 9 percent to over $400 billion next year.
... overall upstream spending will have exceeded $400 billion annually for the first time since 2019.
Despite the expected higher investment next year, the global reinvestment rate – calculated as capital investment divided by pre-dividend post-tax operating cash flow – will stay near record lows, according to WoodMac.
Among Big Oil, no one is splurging on investment these days, unlike in the years prior to the 2015 price crash, when companies were spending as if oil would stay at $100 a barrel forever.
... capex for 2022 is set to be higher at all five majors – ExxonMobil, Chevron, Shell, BP, and TotalEnergies – (but) nowhere near 2014 levels. ...
... Exxon and Chevron plan to focus on renewable fuels and carbon capture and storage (CCS), both to cut their own carbon footprint and to develop in partnership regional CCS hubs in heavily industrialized areas.
“At a Brent price of around US$70/bbl, oil and gas cash flows will be at near-record levels.
... Despite record cash flows, the oil and gas sector faces ‘peak uncertainty’ next year amid climate and shareholder pressure, WoodMac says.
The industry faces increased pressure to reduce emissions and show investors it could be part of the solution – not the problem – in the global drive toward decarbonization.
... “Companies will allocate more capital to upstream decarbonisation. Value accretive solutions, which increase product sales, will continue to lead the way, but CCS projects will gain momentum and attract new participants,” Wood Mackenzie’s McKay said in WoodMac’s Global Upstream Outlook 2022.
The energy research firm expects operators to sanction in 2022 more than 40 projects over 50 million barrels of oil equivalent (boe) each, with low-break even, low-carbon deepwater projects dominating greenfield final investment decisions (FIDs).
The upstream oil and gas industry is set for a rebound next year, but overall investment of $400 billion will still lag the needed around $540 billion to stave off a supply shortage within a few years’ time.
In addition, the pressure to decarbonize would also shape the industry’s future investment choices, both in 2022 and in the long run."