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Oil and Gas Exploration to Return to Profitability in 2017

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Heritage Oil
  • Oil and Gas Exploration to Return to Profitability in 2017

A new study by Wood Mackenzie on what to expect from global oil and gas exploration in the year ahead shows that exploration should return to profitability in 2017 after five years of only single-digit returns.

Wood Mackenzie’s analysis of the 2017 global exploration outlook showed that exploration in 2017 will continue its transformation to a smaller, and more efficient industry.

The new report titled, “Global Exploration: What to look for in 2017,” indicates that overall investments will at best match 2016 year’s spend of around $40 billion, and may yet fall further.

On the bright side, the analysis showed that lower costs mean well counts may hold up close to 2016 numbers. Flat budgets should mean exploration’s headcount cuts are now mainly in the past.

According to Wood Mackenzie, the oil majors and a handful of bolder independents will drill most of the wells to watch, as in both 2015 and 2016, while it is expected that the best discoveries would come from new plays and frontiers, despite greater emphasis on infrastructure-led drilling from many explorers.

Vice president of Exploration at Wood Mackenzie, Dr Andrew Latham, said the oil and gas industry had a good chance of achieving double digit returns in 2017.

“Smarter portfolio choices and lower costs are already paying off. More than half of the volumes are expected to be found in deep water. Here some well costs will fall to $30 million or less, with full-cycle economics that are positive at less than $50 per barrel,” Latham said.

According to Wood Mackenzie’s report, the industry has cut exploration deeper than other upstream spending.

“The industry is focusing on acreage capture and re-loading for the longer term. Companies willing to sign acreage with firm 2017 wells may be spoilt for choice. A spate of new licensing in outer slope plays will continue as explorers digest news of better-than-expected reservoir quality and source rock potential in these ultra-deepwater settings,” Latham added.

“Its share of upstream investment will dip to a new low of just eight per cent in 2017. An eventual return to historic norms – around one dollar in seven – depends on oil price recovery. Wood Mackenzie expects the Brent price to rise sharply from 2019, averaging $77 per barrel in real terms for the year. If this happens, then recovery in exploration spend will follow a year or two later,” said the report.

Some of the emerging exploration themes in 2017, according to Wood Mackenzie, include: exploration for pipe gas opportunities near under-supplied markets such as parts of North Africa, Eastern Europe and Latin America; and over-supplied LNG plays that will be de-emphasised.

The report also argued that high-cost frontiers, such as the ice-impacted offshore Arctic and extreme high pressure/high temperature plays, will be shunned.

“After a decade in the doldrums, the majors’ returns from conventional exploration improved to nearly 10 per cent in 2015. The rest of the industry is heading in the same direction. Fewer, better wells promise a brighter future for explorers,” Latham added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

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naira

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.

This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.

In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.

The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.

Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.

She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.

She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.

Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.

“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.

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Commodities

Crude Oil, Other Commodities Closing Price for Monday

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Crude oil

Crude Oil, Other Commodities Closing Price for Monday

Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.

Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.

The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.

Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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