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Scuttled Natural Gas, Oil Projects to Impair E&P Growth For Years, Says TPH

Investment decisions delayed or canceled this year for at least 150 global natural gas and oil projects, ranging from export terminals to the deepwater, could leave at least $125 billion a year on the table for the next five years, according to Tudor, Pickering Holt & Co. (TPH). ExxonMobil Corp. is estimated to have the largest exposure.

For the analysis, TPH focused on 150 of 350 projects that are in preliminary stages for final investment decisions (FID) by exploration and production (E&P) companies. The Houston-based energy investment firm has a database of about 650 oil and gas projects that have either recently come online, are in development, or are proposed. Overall, the list of 150 deferrals have an associated 125 billion boe of resource, with combined plateau production of 19 million boe/d, 60% weighted to liquids. TPH is estimating 70 potential FIDs by the end of 2016.

By not sanctioning projects as planned, E&Ps could be "putting a hole in production in 2017, 2018 and 2019, potentially a big hole," said TPH's Dave Pursell, head of macro research. If commodity prices were to strengthen, U.S. production would rebound after a period of time, "but it's the rest of non-OPEC that could be structurally impaired for awhile."

TPH analyst Anish Kapadia and his team classified the projects in the queue "still likely to receive FID decisions in the next couple of years as 'delayed' and those with no clear sight to FID as 'on hold.' In this context, around one-third of the projects have been delayed and two-thirds placed on hold," he said.

"The scale of project deferrals suggests that companies will have real growth issues toward the end of the decade. We think the majors will be forced into acquisitions for growth as a result of the lack of FIDs and little U.S. onshore oil resource."

Assuming that only half of the 150 projects reviewed move forward, about $125 billion/year in deferred capital expenditures could be scuttled over the next five years. Liquefied natural gas (LNG) and oilsands projects are most impacted by resource size, accounting for about 25% each of the delayed projects.

Five months ago Wood Mackenzie Ltd. estimated that 46 deferred global projects had been delayed worth an estimated $200 billion-plus (see Daily GPIJuly 28). One year ago Rystad Energy estimated, based on falling oil prices at that time, that about $150 billion of upstream projects scheduled for FIDs would be delayed this year (see Daily GPIDec. 5, 2014).

Most impacted worldwide are oilsands projects in Canada and an estimated 20 deferred LNG projects with almost 20 Bcf/d of capacity, according to TPH.

"Virtually all LNG project sanction decisions outside of the United States have been pushed back," Kapadia said. Projects continue to progress in the United States but elsewhere, not so much. Chevron Corp.'s proposed Kitimat LNG project offshore British Columbia is among those still on the shelf with no FID date scheduled.

Surprisingly, only a few deepwater FIDs have been deferred in the Gulf of Mexico (GOM). Offshore projects are more capital intensive, but spending is spread across many years with a longer payoff. Among the GOM projects canceled to date is the BP-led Mad Dog facility (see Daily GPI, Feb. 3).

Of the oil majors, ExxonMobil has the largest exposure to deferred projects at an estimated 2.5 million boe/d of capacity from 25 projects, or about 66% of its current production, according to TPH. However, BP plc, Royal Dutch Shell plc and Chevron actually have deferred more projects. BP is relying more on gas growth, based on its projects delayed, with about 85% of the projects still in the queue gas-weighted.

"ExxonMobil has by far the most projects geared toward a fairly oily mix, so we think it has mostly challenged projects in a low oil price world," Kapadia said. The No. 1 North American producer has deferred volumes to date that are equivalent to 60% of its proved reserves. Shell has the second most deferrals, but its mega-merger with BG plc may offset some of those losses. Chevron Corp. has the least deferrals relative to size and the best U.S. onshore position.

TPH analysts recently met with Chevron CEO John Watson and said they received "reassurance on LNG projects," while management also highlighted shorter cycle opportunities. The San Ramon, CA-based supermajor is "advantaged versus its peers given its huge Permian Basin optionality." Chevron is spending $2-3 billion on its Permian portfolio "and could spend a lot more."

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