Date ArticleType
1/19/2018 Member News
Will Upstream Bounce Back in 2018?

Will Upstream Bounce Back in 2018?
Posted by Scott Johnson 17-Jan-2018- Oil Voice

Last year, the focus was rmly xed on prices and downstream activity. The headlines and industry talk was all about demand versus supply; OPEC production cuts; price uctuations; geopolitical factors; US oversupply, and at what point Russian frustration would crash the OPEC deal.   

Obviously, lots of this talk will continue and even grow, especially around mid-year when the smart money is on Russia walking away from the OPEC deal. But over the last week or so, things have started to change and, after a lull of a couple of years, our thoughts are turning back towards upstream activities once again. And there's a lot to think about.

Oil and gas exploration suered a major setback in 2014. When crude prices tumbled so did the motivation to spend on exploration and drilling. Spending on these activities dropped by a massive 50%. But this hiatus forced companies to focus on eciencies and develop faster drilling technologies. This rejig in the upstream sector means it's now leaner, faster and more selective than ever before. According to Wood Mackenzie (, the sector may well return to profit soon.

Deepwater drilling was in the news recently when the Trump administration awarded a huge raft of licenses for the U.S. Outer Continental Shelf, opening up more than 90% of the area. The ensuing backlash from tourist destinations such as Florida may force a rethink but the vast majority will still go ahead. The Trump administration is unashamedly oil-friendly. 

But it's not just the U.S that will be pushing ahead with exploration and drilling. They might be leading the charge but they have competition. Driven by relatively settled oil prices and the growing interest of operators, Latin America is set to start intense oshore deepwater exploration activity in the basins of Brazil, the Equatorial Margin, Argentina, Uruguay and Mexico.

Licensing rounds in Brazil and Mexico will be the ones to watch ( They are expected to attract huge bids from Asian operators who have money to spend and know a good deal when they see it. In addition, the Argentinean and Brazilian rounds are both backed by large-scale seismic surveys which adds to their desirability to all-comers.  

Meanwhile, across the globe, the Israeli Petroleum Commissioner last month awarded ve oshore oil and gas licences within the Israeli Exclusive Economic Zone (EEZ) to Greek independent Energean Oil & Gas. The new licences grant an initial exploration period of three years in blocks near the Energean's Karish and Tanin gas elds. The licenses could be extended for the further three years.

While smaller independents are active right now, the big Majors are not letting the grass grow under their feet. Just this week, Shell announced it will start drilling in the Penguins oil eld in the North Sea, o the coast of Shetland. Along with project partner ExxonMobil, they hope to unlock up to 80m barrel, with a peak production of 45,000 barrels of oil per day.

Across the North Sea in Scandinavia, Norway has been pumping out new exploration licenses ( for the Norwegian continental shelf this week, granting a record number of 75 to 34 oshore companies including ConocoPhillips, Statoil and Total. The awards consist of 22 in the Norwegian Sea, 45 in the North Sea and eight in the Barents Sea. Perhaps unsurprisingly, Norwegian giant Statoil walked away with 31 licenses including 17 as lead operator.

As in the U.S. these awards, especially the plan for the Barents Sea, have drawn criticism from environmental groups. Arctic drilling has always been contentious, and remains a high-risk endeavour with no guarantees – after decades of exploration, only two elds currently produce: Statoil's gas platform and Enli's oil rig. But there is renewed optimism that technological advances will reap rewards this time, so the environmental protests are likely to be in vain. For these protestors, it may be better to focus on high-tech renewable sources of energy( instead, like biogas.

Twenty-eighteen has kicked o a revival in upstream activity which promises an exciting year ahead. Of course we won't know, possibly for years, whether and of this exploration work will hit pay-dirt. But while the demand is still there, the appetite for exploration will continue, and the next few years could hearld interesting times in the world of upstream.