Oil price forecasting has been shown to be challenging if not impossible for the long-term. However, the oil price has a major impact on Exploration and Production projects.
Historical Project Realized Oil Price (PROP) can be calculated for example projects by summing up the total project revenue using the actual oil prices and dividing through the total amount of oil produced. For different starting dates of example projects, the PROP changes. Determining the PROP for different starting times, a Cumulative Distribution Function (CDF) can be derived. Adjusting this CDF for expected "half cycle breakeven costs" for the low limit and demand considerations for the high case leads to a PROP range that can be used for future project evaluation.
Including PROP ranges into project evaluation allows for the selection of the most attractive development option, Value of Information analysis and project Probability of Economic Success (PES) calculation including oil price uncertainty.
Furthermore, using PROP ranges rather than oil price scenarios enables a distinction between short-term budget planning and long-term project development. For budget planning, a scenario approach is suggested while for long-term planning PROP ranges should be used. Applying long-term planning on PROP ranges leads to less fluctuation in staff planning and small annual adjustments in PROP range forecasting. Also, using PROP ranges results in increasing PES project hurdles at low oil prices and lower PES hurdles at high oil prices. Hence, at low oil prices the risk averseness of the company is increased. Another effect of using PROP ranges is that at high oil prices robustness of projects to low oil prices is included in the assessment.
To investigate the effect of PROP ranges on portfolio PES hurdles and project PES hurdles, a simplified linear-fit-model was developed. The results of the model showed that the project PES hurdles in a Value at Risk assessment can be determined applying the linear-fit-model to quantify the oil price dependency. The required individual project PES hurdles can be adjusted using the linear-fit-model to account for oil price uncertainty.
While it has been nearly five years since the crude oil downturn, the market is still on a path to recovery due to continued strong demand, modest production growth, and sharp inventory drawdowns. However, the question of whether the recent oil price changes will be short-lived remains, knowing the recent trend that near-term oil futures trade at a premium to futures dated out further. How will the industry continue to add value? This October, leaders and experts from the petroleum and finance industries across the globe will unite in London to share valuable insights, high-level discussion and debate on issues within oil and gas and finance and investments. Upstream Finance and Investments Conference will focus on how to position the oil and gas industry in a volatile price environment while achieving supply-demand balance, promoting technological growth and providing prudent investment on exploration.
How oil prices affect the economies of countries differently. Sustained rapid economic growth has made China and India increasingly important in the world economy. The accompanying surge in energy demand from these two countries has been a factor in recent oil price increases. Young professionals offer their opinions on these opportunities and threats.
Oil and natural gas are the lifeblood of modern economies. Together, they account for close to 60% of global commercial energy consumption. So why are prices so volatile? For young professionals, understanding the governing principles of oil price and connecting them with facts is key to facing the price turmoil.
However, concerns remain about a number of issues, ranging from the steel tariffs to crude oil price differentials in the Permian. Energy activity has shown solid expansion, but to increase drilling, companies need a higher average oil price compared to last year’s surveys, reflecting a steady increase since 2Q and 4Q in 2017. The ability to find workers and limited pipeline capacity could limit near-term growth. Aggressive drilling growth in the Permian and other shale plays belies the cost of those wells, which in many cases are in the red.
The cost cuts made during the downturn and the recent increase in oil prices have led to some global offshore projects becoming economically viable. Norway is leading the comeback. A rise in oil prices close to 3-year highs should further stimulate a recovering oilfield services and equipment sector, despite lower than expected late-2017 activity in US shale.
The oilfield services and equipment sector, while optimistic, has not yet seen the effects of the improved oil price in the recovery of its overall business. As the debate continues about oil prices and supply and demand, the SPE Production and Facilities technical director examines data published by various organizations on the short- and long-term industry outlook. Can aggregative contingent estimation (ACE) improve the quality of oil price forecasts and even project performance? I have come to believe that oil price can be determined with reasonable confidence, and the key to such forecasting is ACE. Oil at USD 20 per Barrel: Can It Be?
The oilfield services sector showed steady revenue growth in 2018 thanks, in part, to increased project sanctioning. With the oil price falling $20 in the past 2 months, however, the future may be murkier than expected. A report from Rystad Energy shows a near-term boost in the global floating production market, with more than 30 new FPSO projects possibly reaching sanction from 2019 to 2021. As rig counts continue to go up in the region, the Permian water disposal market is expected to see growth through 2021 with a possible record-high 8.4 billion bbl next year.
From its record high in 2014, purchases of subsea equipment and SURF fell around 50% until reaching a low in 2018. New data suggest that the subsea market will be a top-performing oilfield service segment. Deepwater production has become more reliant on the integrity of subsea, umbilical, riser, and flowline (SURF) systems. Projects are being delayed or deferred due to low oil prices, which is affecting the market for subsea, umbilicals, risers, and flowlines (SURF).