A shift by global natural gas and oil companies to unconventionals, liquefied natural gas (LNG) and the deepwater has lifted prospective value growth across the upstream sector by 23% from a year ago, according to new research by industry consultant Wood Mackenzie.
"The Changing Face of Upstream Value," the UK consultant's latest annual review of future international upstream portfolios, estimates the remaining value of commercial assets at slightly more than $3.2 trillion, which is 23% higher than in June 2010, based on cumulative asset values, discounted at 10% from Jan. 1, 2011.
Wood Mackenzie's valuations only include projects in production, under development or expected to be developed under current commercial and fiscal conditions with no allowance for the "latent value" in exploration acreage or subcommercial reserves. No national oil company or government assets were included.
"We have seen a shift in international companies' portfolios over the past decade toward four key themes: deepwater, LNG, unconventional gas and unconventional oil," said Regional Upstream Manager Iain Brown, who authored the report. "These now make up between 30% and 70% of future upstream value for the international majors. It is also notable that value prospects are still high in the traditional producing regions of North America, Europe and Australia. Together these regions account for more than half ($1.7 trillion) of future upstream value for international companies."
Part of the growth in the past year has resulted from "more bullish assumptions for future oil prices but that is only part of the story," said Brown. "Most of the leading international companies have successfully enhanced their value expectations over the past year through a variety of measures including acquisitions, increased exploration investment, reserves additions and resurgent development plans."
By resource "theme," ExxonMobil Corp., which is the largest gas producer -- unconventional or otherwise -- in North America, led Wood Mackenzie's list of the top 15 by upstream portfolio value. The 14 other leaders in order are Royal Dutch Shell plc, Chevron Corp., BP plc, Total SA, Eni SpA, ConocoPhillips, Statoil ASA, OAO Lukoil, BG Group plc, Occidental Petroleum Corp., Suncor Energy Inc., Anadarko Petroleum Corp., Devon Energy Corp. and CNR International Ltd.
Producers whose portfolios showed the biggest gains in value from a year ago were Anadarko, Devon and and EOG Resources Inc. "largely due to the increased coverage of U.S. unconventional plays in our valuation," said the authors. Wood Mackenzie added several U.S. unconventional plays to its report this year, including Bone Spring, the Eagle Ford Shale and the Niobrara formation, and it upgraded several other significant plays, including the Granite Wash and Wolf Camp plays, along with the Bakken, Marcellus and Haynesville shales.
"The past five years has been a period of transformation in the unconventional gas business," the report stated. "A collection of substantial niche plays in the U.S. have become some of the industry's major growth themes. The industry's enthusiasm for shale gas and to a lesser extent, coalbed methane and tight gas plays in the U.S. Lower 48, inevitably includes an element of long-term execution risk. Nevertheless, the more prospective acreage in these plays has the potential to provide the U.S. with energy security (at least in terms of gas) for many years to come."
Unconventional projects are the source of most of the value growth in the U.S. energy industry in recent years, noted the authors. "Advances in technology and reductions in operating costs in the U.S. have highlighted the potential for commercial production of shale gas and coalbed methane in other parts of the world. Whilst there may be huge upside potential in Australia, China, India, Indonesia, Latin America and continental Europe, these are not a major part of our value projections at this stage."
The international oil and gas industry continues to face a "formidable range of threats and uncertainties," Brown and his team noted. "It is intermittently declaimed as a 'sunset industry,' citing shrinking opportunity sets, falling reserves, environmental activism, escalating costs and rampant resource nationalism. However, these gloomy sentiments are not supported by the evidence, which shows the industry responding with gusto to this formidable set of risks and constraints."
Wood Mackenzie's long-term oil supply forecast is showing a "slow but steady shift" toward heavier oil grades, which would include a big contribution from Canada's oilsands. "Canadian oilsands is one of the most valuable sectors in our global assessment -- at around $180 billion." In addition, production in North America "is now increasingly being supplemented by shale oil, which promises substantial value from reservoirs that were previously viewed as uneconomic."
International players will continue to face uncertainty from "resource nationalism, restricted access to conventional resources and governments seeking larger shares of revenues during periods of high oil prices," said Brown. "However, there are solid foundations for long-term growth in these four key resource themes, and as unconventional reserves rapidly become part of the mainstream. There will be significant growth in emerging provinces such as Brazil, and in West and East Africa, but there is also huge potential to be realized in traditional heartlands such as North America and Europe."