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February 2, 2017 • Volume 09, No. 02

InternatIonalCapItalServing the marketplace with news, analysis and business opportunities

Worldwide Upstream spending going up 7% in 2017Barclays projects more than $404.5B in upstream spending

More than 100 E&P companies worldwide will increase their E&P spending an average of 7% this year, according to Barclays. The slow recovery in oil prices has brought back some confidence among E&Ps that is translating to slightly more investment activity in

certain regions. Largely credited for the uptick is Brent oil at or near $55/bbl—double the 12-year low hit a year ago—and OPEC’s vow to limit production. Furthermore, rampant cost-cutting by service providers and contractors and better technology

have made more projects economically feasible at lower price points. Companies surveyed formed an aggregate global E&P spend of $404.571 billion.

International upstream spending will increase by 2% in 2017 when removing the US from the equation.

NOCs plan to raise spending by 9%, but that figure is offset by reductions among European independents and international E&Ps, which will each scale back by 7% from 2016 levels, and US independents that are cutting by 15%. Growth is expected almost everywhere but Europe.

In North America, spending will grow 27% in 2017. The forecast is predicated upon $55/bbl Brent and $50/bbl WTI. In its survey a year ago, the investment bank forecast a 15% drop in global spending. The actual decline in spending was 23% with Brent/WTI oil prices averaging $45/44 a barrel during the year. In its 32 years of conducting its survey, Barclays has reported just eight years of zero growth or decreases, two of those being the past two years.

Optimistic spending plans underscored by OPEC output cuts & more stable prices.

Worldwide E&P Spending by Region: Actual ‘15- Est ‘17Region 2015A 2016E 2017E 2015-

2016%2016-

2017 %North America $125,857 $77,713 $98,328 (38.3%) 26.5%

Middle East 52,873 57,138 58,642 8.1% 2.6%

Latin America 55,117 34,500 37,529 (37.4%) 8.8%

Russia⁄FSU 37,242 35,263 38,750 (5.3%) 9.9%

India, Asia & Australia 77,974 62,527 70,335 (19.8%) 12.5%

Europe 28,378 21,680 20,359 (23.6%) (6.1%)

Africa 21,629 17,642 17,912 (18.4%) 1.5%

Majors (International) 79,877 62,234 51,025 (22.1%) (18.0%)

NAM Independents 8,810 4,327 6,858 (50.9%) 58.5%

Other E&Ps (International) 4,555 4,042 4,834 (11.3%) 19.6%

International Spending Total $366,454 $299,352 $306,244 (18.3%) 2.3%

Worldwide E&P Spending: $492,311 $377,065 $404,571 (23.4%) 7.3%

Source: Barclays

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Continues On Pg 2

1. More confidence manifests itself in higher spending this year

2. Exxon Upstream earns $196MM, Chevron’s loses almost $2.5B

3. Downstream & chemicals kept Exxon in the black in 2016

4. Rosneft upping budget 20% to about $11.6B

5. Husky, 7G, Encana, Tourmaline all spending more this year

6. CNOOC lifting spending by 40%, other Chinese oil SOEs may follow

QuickLook

Capex to increase two-thirds in US Permian Basin

The conditions that make worldwide E&P spending growth a reality in 2017 have set the stage for record spending in the US Permian Basin this year. Barclays estimates US E&P spending growth will rise 27% this year to $98.3 billion, much of it in the Permian, where $28 billion of the US’ $69 billion in M&A activity was transacted last year.

The focus on the Permian is based on simple math that factors in profitability and the basin’s myriad geographic

advantages and technological advances making it economical to drill there. Permian Basin producers can make money at current oil prices because of a comprehensive pipeline network, plentiful labor and supplies, and a climate that enables year-round work.

At YE16 the Permian had 264 rigs running, almost double the 134 reported earlier in May 2016. In January, more than $11.5 billion in Permian M&A deals were announced.

Permian capex increase should positively impact global spending.

Continues On Pg 9

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InternatIonalCapItal 2 February 2, 2017

Globally, national oil companies are expected to take a multi-year approach to spending. Examples of this are Petrobras’ 2017-2021 strategic plan calling for spending over the next five years amounting to $74.1 billion, and Ecopetrol’s

plan through 2020 in which it would spend $13-17 billion depending on oil prices. Much of the reason why NOCs are pumping almost 9% more into spending is to

generate oil revenue to balance their national budgets. Independents, on the other hand, will spend less as their investment philosophies revolve around long-term fundamentals and replacing production after maintaining dividends. Thus, European IOCs will spend 7.2% less, international E&Ps 7.3% less and US IOCs more than 15% less YOY.

Projects awaiting FIDs this year include Total’s Libra ultra-deepwater field in Brazil and Absheron gas project in Azerbaijan; Eni’s Coral South gas field in Mozambique; and ExxonMobil’s Liza oil discovery offshore Guyana. BP’s November announcement of its $9.0 billion commitment to Mad Dog 2 in the Gulf of Mexico could indicate spending there, but no formal confirmation of Mad Dog spending has yet been made by BP in its 2017 capex.

Moving in right direction—E&P investment this year will still be 40% below 2014 levels and the number

of projected FIDs would still be about half the annual rate 2010-2014, Wood Mac says. The Barclays survey shows this year’s spending estimate down 18% from 2015’s actual $497 billion in spending. Nevertheless, increased YOY spending is still movement in the right direction. What could derail this year’s forward

trajectory would be uncertainty over long-term demand for oil, doubt about the OPEC cuts sticking and CEO promises to shareholders to preserve and grow dividends above all else. Moody’s analyst Steve Wood said the five largest western oil companies want to get back to being cash flow positive and not lock in a capital budget at $55/bbl.

The investment rebound will be strongest in US shale production, especially in the Permian Basin, where new production opportunities are comparatively cheaper. Average well prices of about $5.0 million allow companies to be much more flexible than mega-projects that could be a decade or more before hitting first oil.

Supermajor spending in 2017 generally lower & cautious—After adjusting its budget upward and downward in 2016, Chevron spent $22.4

billion on capital and exploration expenditures last year. This year, though, the company has $19.8 billion budgeted for capex and has stated that it would spend $2.0 billion in the Permian, $2.0 billion on the Gorgon and Wheatstone LNG projects in Australia, $3.0 billion for the Tengiz project in Kazakhstan, $1.0 billion for global exploration funding and the rest on early stage projects and future development opportunities.

Total said it would spend between $15-17 billion this year, after $19 billion in capex last year. It plans to become more gas-centric this year as it expands along its full gas value chain, grows marketing and services and preps its Yemen LNG project for startup in 2020. It has 10 projects under construction including the Al-Shaheen oil field in Qatar, work at a 40-year onshore concession under the ADCO partnership with the Abu Dhabi National Oil Co., and the ultra-deepwater Libra oil field in Brazil.

FX as of February 1, 2017One US Dollar ($) =

Euro 0.929

Pound 0.791

Yen 113.281

RMB 6.879

Canadian Dollar 1.309

Australian Dollar 1.322

Ruble 60.242

Norwegian Krone 8.253

Mexican Peso 20.830

Romanian Leu 4.220

Saudi Riyal 3.751

Brazilian Real 3.154

Venezuelan Bolivar 9.982

Indian Rupee 67.460

Singapore Dollar 1.415

Malaysian Ringgit 4.429

Thai Baht 35.129

Hong Kong Dollar 7.759

Did You Know?Oil prices will hover, on average, around $57/bbl in 2017 per Barclays analysts, who also predict risks will skew to the upside in H1 and the downside in H2. Natural gas’ average price this year will be $3.34/MMbtu. The bank says the current gas price curve is aligned with its forecast. Price assumptions form the basis of nearly all capex decisions.

Worldwide E&P spending going up in 2017 Continued From Pg 1

NOCs to help governments augment shrinking national budgets with more oil.

E&P spending two years ago reached almost $500B globally.

Continues On Pg 3

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Royal Dutch Shell, which fell $1.0 billion short of the low range of its divestment goal of $6.0-8.0 billion last year, will continue to focus on selling assets in Iraq, Thailand, Gabon and New Zealand. It plans to spend $25 billion in 2017. Its 2016 actual spend was $29 billion of the initially announced $33 billion. The company is still settling after the integration of BG Group into its operations to become the world’s largest LNG supplier, and dealing

with $78 billion in debt. Shell has been under pressure to cut spending from shareholders who want to see their dividend

maintained. In an earlier conference call, the company said its priorities are deepwater and petrochemicals and it will spend along those lines.

BP brought 2017 spending down to the $15-17 billion range after its actual 2016 spending of about $16 billion came in under its original $17-19 billion capex range. Its focus in 2017 is to work on blocks in Senegal and Mauritania in which it recently

became owner, along with Kosmos Energy. It will also spend its share in the Shorouk concession in Egypt, the

ADCO field in Abu Dhabi, and in the development of the ACG field with Azerbaijain’s SOCAR. It will also support a sales & purchase agreement with Thai NOC PTT to supply it with 1.0 mtpa of LNG starting this year. It’s not clear if capex includes spending on Mad Dog, the deepwater Gulf of Mexico project revived on improved economics, but the company announced it had begun work on expanding neighboring Thunder Horse South.

An ExxonMobil spokesman indicated that the company may possibly release capex guidance in the $22 billion range for 2017 after an actual spend of $19.3 billion in 2016, when it holds its next analyst call in a month. The company has already announced a $5.6 billion all-share acquisition to double its holdings in the Permian Basin so it would be no surprise if some of the money is spent there. The Exxon spokesman mentioned new Guyanese blocks Liza and Paraya as possible assets into which investment can be directed.

CENTRAL AFRICAGABON OPPORTUNITY1-Licence. 1,120km2.SOUTH GABON BASIN DVMultiple Well-Imaged Prospects.Production Sharing Contract. OFFSHORE40% EQUITY AVAILABLE FOR FARMOUTComb. Resource Potential: 1,000 MMBOCONTACT AGENT FOR MORE INFODV 1728FO

EAST AFRICAETHIOPIA OPPORTUNITY1-Block. >4,900,000-Acres. >20,200km2NORTH EAST ETHIOPIA DVOne Identifed Prospect.Petroleum Production Sharing Agreement SEEKINGSEEKING JV PARTER JVProspective Resources: 800 MMBOECONTACT AGENT FOR MORE INFODV 8153FO

EAST AFRICA FARMOUT1-CBM Project.TETE PROVINCE - MOZAMBIQUELOWER ZAMBEZI BASIN DVEarly Stage Of CBM Project.Permo-Triassic Coals. 250-1,000m.Pilot Wells Planned. Gas Markets Identified. CBMSEEKING JV PARTNERS TO FULLY---FUND DEVELOPMENT PROGRAMME.Potential >12 TCFCONTACT AGENT FOR UPDATEDV 2792FO

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Worldwide E&P spending going up in 2017 Continued From Pg 2

At $25 billion, Shell has the biggest spending plans of the supermajors.

BP’s $15-17 billion range on par with 2016’s $16 billion spending.

Projected Supermajor Spending – Estimated 2017 Source: PLS Research

Company 2017 capex 2016 capex Major Focuses in 2017

Chevron $19.8 billion $22.4 billion

• $3B for Tengiz• $2B for Permian• $2B Gorgon & Wheatstone LNG• $1B Global Exploration Early Stage • Future dev. opps

BP $15-17 billion $16.0 billion• Develop blocks in Mauritania & Senegal• Shorouk concession• Abu Dhabi - ADCO• Maybe Mad Dog

Shell $25 billion $29.0 billion• Priorities deepwater & petrochemicals • Brazilian & Nigerian deepwater projects • Ethane cracker in Pennsylvania

Total $15-17 billion $19.0 billion• 10 projects under construction • Al-Shaheen oil field in Qatar • Abu Dhabi- ADCO • Ultra-deepwater Libra oil field in Brazil.

Exxon $22 billion* $19.3 billion • Newly acquired Delaware Basin acreage* • Guyanese fields Liza and Paraya*

*Tentative budget & plans mentioned but not confirmed on 4Q16 conference call.

Continues On Pg 6

Exxon buying 275,000 mostly Permian net acres for $5.6B-plus from Bass Bros.

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Canadian spending will rise in 2017Canadian oil firms, which spend not just in Canada but worldwide, are expected

to increase their capex budgets on average. Data from CanOils show that 65% of companies in the Canadian oil and gas sector plan to spend more this year. Though this maybe not be evident from gigantic Suncor, which is reducing capex to $4.8-5.2 billion this year from its most recently downward-adjusted $5.8-6.0 billion range in 2016, most Canadian companies like ARC Resources and its $665 million budget this

year (vs. $550 million last year) support the data.

Suncor will put $4.1-4.4 billion into upstream, $625-675 million into downstream and $40-50 million into corporate spending this year. Also adopting a conservative stance this year is Canadian Natural Resources, which will spend $3.9 billion this year and stay below targeted cash flow. Its capex budget is on par with its $3.5-3.9 billion range last year. Imperial Oil is reducing capex to $1.0 billion from $1.16 billion last year.

Other than that, there are modest to significant capex increases in Canada. Encana plans to spend more this year, announcing a $1.4-1.8 billion capex range compared with $900 million-$1.0 billion last year. Tourmaline Oil also upped its budget at $1.3 billion this year from expected actual spending of $825 million in 2016. Husky Energy will spend up to $2.7 billion this year after cutting 2016 spending

down to $2.3 billion. Mid-sized companies

that have increased their 2017 budgets include Crescent Point Energy, Whitecap Resources, Enerplus, Kelt Exploration and Painted Pony Petroleum. Their five budgets together add up to $500 million more spending in 2017 than their 2016 planned spending. “If you’re optimistic for 2017 pricing being higher and you have a new lower cost structure, that’s where you’re seeing some of the capital expenditure increases going forward,” according to AltaCorp Capital analyst Thomas Matthews.

EAST AFRICAEAST AFRICA OPPORTUNITY2-Licences. 41,000 sq km.ONSHORE SOMALILAND EXUnderexplored Acreage. Mesozoic Rifts.High Impact Exploration Wells - -- In 2018/19. FARMOUTSimilarities To Yemeni Rift Basins.SEEKING JV PARTNERCONTACT AGENT FOR MORE INFOEX 2589FO

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Canadian CapexCompany 2017 2016 Major focuses in 2017

Suncor $4.8-5.0B $5.8-6.0B

• $4.1-4.4B in upstream• $625-675MM in downstream• Grow production at Firebag, Mackay, Base Mine• Complete Fort Hills & HebronSyncrude

CNRL $3.9B $3.5-3.9B• Complete Horizon expansion• $525MM increase to drilling program• Advance Kirby North

Husky Energy $2.6-2.7B $2.1-2.3B

• Build Rush Lake 2• Lloyd thermal projects• SAG thermal business at Sunrise• Lima refinery expansion

Seven Generations $1.5-1.6B <$1.0B

• $850-950MM for drilling & completions• $525MM for facilities & infrastructure• Kakwa River project

Encana $1.4-1.8B $900MM-$1.0B

• $850MM-1.0B in Permian• $200-300MM in Montney • $300-450MM in each of the Eagle Ford and Duvernay.

TourmalineEnergy $1.3B $1.1B

• Develop acquired Shell assets in Alberta Deep Basin & Montney• NEBC Montney gas condensate complex

Source: PLS Research

Husky spending 33% more this year, much going to thermal business.

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Chevron’s Declining Spending A Sign of the TimesTotal capital & exploratory OPEX and SG&A

DS&C & Other

Base & Short-Cycle

Gorgon / Wheatstone

FGP / WPMP

Exploration / Growth MCPs

Investment priorities • Safe, reliable operations

• Complete projects in-flight

• Short-cycle, high return investments

• Pace unsanctioned projects

0

5

10

15

20

25

30

35

40

45

2017budget

2018 - 2020guidance

5

10

15

20

25

30

35

$ billions

Total C&E includes affiliate spend.

$ billions

OPEX and SG&A = operating, selling, general and administrative expenses as reported on income statement (excludes affiliate spend)

17 - 22 19.8

Annual actuals

Annual guidance

Annual actuals

Annual guidance

22.4

Source: Chevron Jan. 27 Presentation via PLS docFinder www.plsx.com/finder

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TUNISIA PROJECT1-Permit. 556,481-Acres. (2,252km2)GHADAMES BASINOne Discovery. DV8 Identified Leads: Silurian SandstoneAlso Re-Entry Project for 2-Wells.SEEKING JV PARTNER FOR --- RE-ENTRY---EXPLORATION PROGRAM.Recoverable Reserves: 64 MMBOUnrisked STOIIP: 425 MMBOCONTACT FOR ADDITIONAL INFODV 1022FO

NORTHERN EUROPEUNITED KINGDOM FARMOUT1-Block. 1-Drilled Well.EAST IRISH SEA BASIN DVTriassic Sandstones Discovery.Dinantian Limestones. OFFSHOREPromote Period Extended Until Dec 2017.SEEKING JV PARTNERP50 Reserves: 291 BCFDV 1696FO

UNITED KINGDOM PROSPECT1-Licence. 2-Blocks. 157 sq km.UK NORTH SEAOUTER MORAY FIRTH DVOne Identified Prospect.Exploration Well Required By Nov 2018. NORTH3D Seismic Data Available. SEA40% OPERATED WI FOR SALEUnrisked Prospective Rsrce: 67 MMBOECONTACT AGENT FOR MORE INFODV 1919

OFFSHORE UK PROSPECTS1-Licence. 4-Blocks.UK CONTINENTAL SHELFTwo Identified Prospects & One Lead. DVUpper Jurassic Appraisal & Exploration.SEEKING JV PARTNERUp To 50% NonOp Working Interest Avail FARMOUTDrilling Planned For Q4 2016.Potential Gross Reserves: 107 MMBOEPotential Upside Reserves: 200 MMBOECONTACT AGENT FOR MORE INFODV 1585FO

Exxon & Chevron report lower 2016 earningsExxonMobil and Chevron are among the first in the global oil community to

report their FY16 and Q4 results. Exxon’s Q4 earnings of $1.68 billion were down 40% YOY, notably on a $2.0 billion hit to earnings in the form of an impairment charge on mainly undeveloped acreage in its Rockies dry gas operations, Chevron swung back into black with $415 million in profit from a $588 million net loss a year ago. Exxon reported 2% more revenue at $61.0 billion while Chevron’s Q4 revenue was 8% higher YOY at $31.5 million.  

Exxon spent 35% less YOY in capital and exploration expenditures in Q4 at $4.83 billion, while cash flow from operations and asset sales was $9.5 billion. It distributed

$3.1 billion to shareholders during the quarter, or about 14% less than its 4Q15 payout, though dividends per share of $0.75

increased 2.7% compared with the period a year ago.

Chevron’s Q4 capex amounted to $5.26 billion, or 40% lower than a year ago, while its cash flow from operations was $3.86 billion. Chevron paid out $2.0 billion in dividends during the quarter, unchanged from a year ago.

Exxon nets $7.84 billion in 2016—That Q4 impairment charge of $2.0 billion brought the company’s FY16 earnings to

$7.84 billion, down 51% YOY, on $226 billion in revenue, down 16% YOY. The company’s FY16 cash flow from operations and asset sales was $26.4 billion, including proceeds associated with asset sales of $4.3 billion. Exxon’s actual spend on capex and exploration was $19.3 billion in 2016, 38% less than the year before. Throughout the year, Exxon delivered $12.5 billion to shareholders via dividends and the repurchase of 12 million shares, costing $977 million, a 75% decrease in the amount of repurchased shares.

Exxon’s upstream segment earned $196 million in FY16 including the impairment charge, but $2.2 billion without it, down $4.9 billion from 2015. Lower realizations decreased earnings by $5.3 billion. Favorable volume and mix effects, and other items increased earnings by $440 million. Non-US upstream earnings were $4.3 billion, down $3.8 billion from 2015. US upstream operations lost $4.2 billion in 2016, including the $2.0 billion impairment charge. Without it, the segment lost $2.1 billion, widening from last year’s $1.1 billion loss. Continues On Pg 6

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Supermajor ExxonMobil spent 38% less in FY16 at $19.3 billion.

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InternatIonalCapItal 6 February 2, 2017

Europe’s companies spending 6% less on E&P this year—Europe’s mix of active state-controlled oil companies and independents will see a

6% drop in E&P spending this year compared with 2016, according to a Barclays survey using a sample of 15 companies ranging from the largest like Statoil and Eni to the smallest like Northern Petroleum and Lansdowne Oil & Gas.

The total in its sample comes to about $20.36 billion. The biggest of them, Eni, outlined an E&P budget of $8.0 billion this year, down 6% from the $8.5 billion it was estimated to have spent last year. Eni CEO Claudio Descalzi said oil prices would stay high enough over the next three years for Eni to maintain both its capex and dividend. He told Bloomberg,

“Our number that’s good to cover our investment and our operating cash flow is $50.” He also urged other companies, like BP, to curtail spending like he was. “2017 will still be a very low capex year, and we have to try to optimize, and we have to reduce capex but be able to maintain production.”

Statoil’s E&P budget will stay flat in 2017 at $7.3 billion, but the company will drill 30 exploration wells compared with 23 last year, said EVP for exploration Tim Dodson. GlobalData reported that Statoil will have the highest 2017 capex spending among all companies operating in the North Sea region thanks to the Johan Sverdrup

development offshore Norway and the UK North Sea Mariner heavy oil project.

Austrian NOC OMV will spend 16% more this year on E&P at $1.62 billion, but most of the other companies in the survey are reducing considerably, including Lundin cutting back 19% to $890 million, det Norske slashing 20% to $733 million and recently bailed-out Premier Oil, spending 59% less YOY on E&P at $300 million.

Other companies that were included in the sample were Enquest, Cairn Energy, Oranje-Nassau Energie, Vermillion Energy Trust, Faroe Petroleum, Ithaca Energy and Tulip Oil.

Middle East growth expected to be minimal at 3%—In the Middle East, E&P spending is forecast to grow by a modest 3% to

$58.6 billion, compared with 8% growth last year. Abu Dhabi National Oil Co. and Iraq’s South Oil Co. will reduce their budgets 10% and 15% respectively, but budgets will be slightly higher elsewhere in the region. Saudi Aramco is spending 4% more while National Iranian Oil Co. will add 6% more to

its budget. Qatar, Kuwait and Oman NOCs will add 10%, 7% and 5%, respectively, to E&P spending. Barclays used a nine-company sample for its survey that included the above firms plus Kuwait Oil Co. Petroleum Development of Oman, Qatar Petroleum Corp., Missan Oil Co. and DNO.

The International Monetary Fund reported that 2017 fiscal breakevens for Middle Eastern countries, which rely heavily on oil revenue to finance their generous social spending programs, would be 13% lower on average than 2015 levels. Saudi Arabia breaks even at $78/bbl and Kuwait, Iraq, UAE, Iran and Qatar would break even in the $50-$60/bbl range, assuming current oil prices. The rest of the Middle East countries need a minimum of $80/bbl to break even.

Worldwide E&P spending going up in 2017 Continued From Pg 3

Eni employing ‘dual exploration model’ which brought in $6.3B since 2013.

Statoil completely out of Canadian oil sands, took up to $550MM loss.

Petrobras’ Capex Breakdown Through 2021

Refining &Natural Gas$12.6 billion

E&P$60.8 billion

Other$0.7 billion

Source: Petrobras Dec. 8 Presentation via PLS docFinder www.plsx.com/finderContinues On Pg 7

The company’s downstream business earned $4.2 billion, which is $2.4 billion less than FY15 results. Weaker refining and marketing margins decreased earnings by $3.8 billion. Volume and mix effects and other items increased earnings by $1.48 billion, primarily gains from divestments. Petroleum product sales of 5.5 MMbbl/d were 272,000 bbl/d YOY after selling refineries in California and Louisiana. US downstream earned $1.1 billion, or $807 million less than FY15, and non-US downstream posted $3.1 billion in earnings, down $1.5 billion YOY.

Exxon’s comparatively stable chemicals business earned $4.6 billion, up $197 million from 2015, on stronger margins, favorable volume and mix effects. Prime product sales of 24.9 million mt were up 212,000 mt YOY. US chemical earned $1.9 billion, down $510 million YOY reflecting the absence of asset management gains. Non-US chemicals earned $2.7 billion, $707 million higher YOY.

New chairman and CEO Darren Woods said prolonged industry downturn impacted the company in 2016.

Chevron reports first annual loss since 1989—

Chevron couldn’t extend that upward trajectory from Q4 into its year-end 2016 results. It reported a FY16 net loss of $497 million on $114 billion in revenue, compared with $4.6 billion in net income on $138 billion in revenue for FY15.

It was Chevron’s first annual net loss since 1989, according to SEC filings.

CEO John Watsonsaid Chevron was sizing its workforce to match expected work, and that most of the significant reductions had been made. Since 2014, Chevron has eliminated about 9,400 jobs worldwide, Watson said on the company’s earnings conference call. 

Exxon & Chevron report lower earnings Continued From Pg 5

$2B impairment charge on Exxon’s Rockies dry gas business.

XOM upstream & downstream down YOY, chemicals up.  

Cont’s On Pg 8

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Access PLS’ archive for previous energy finance news

Latin American spending balances cuts with big individual spikes— As mentioned earlier, Petrobras is focused on multi-year budgeting with $74.1

billion to be spent by YE21. This year will see an increase in its E&P spending by 21% YOY to $19.2 billion followed by subsequent declines. Its spending this year boosts the overall figure in the 11-company Latin American sample by 9% to $37.53 billion, though Pemex and YPF won’t be participating in the spree with their own funds, seeing 18%

and 10% drops. Colombian NOC

Ecopetrol will spend an estimated $2.85 billion, or more than double YOY. Ecuador’s NOC Petroamazonas plans to increase E&P spending by 15% to $713 million and the E&P sub of Chile’s ENAP will raise spending by 22% to $550 million.

Mexico, with its deepwater assets now open to the world, will realize the benefits of budget outlays of various supermajors, NOCs and independents, though its own Pemex plans to spend less on E&P at $5.5 billion this year compared with $6.7 billion last year.

In a Dec. 5 auction, some of the world’s biggest oil companies including BHP Billiton, ExxonMobil, Statoil, Total, BP and Chevron were awarded rights to develop eight out of 10 Gulf of Mexico blocks. In Argentina,

though YPF plans to invest $2.3 billion of its own money into the Vaca Muerta this year, others will put in more than double that. Chevron, Total, Shell and BP unit Pan American Energy will invest $5.0 billion and even double that in coming years.

Also polled within the Latin America sample were PDVSA, which will remain flat at $9.0 billion in spending, CEPSA, Parex Resources, Amerisur Resources and GeoPark Holdings.

Russia generally up on state-sponsored spending—Average E&P spending will rise 10% in Russia and former Soviet Union countries

after it fell 5% last year. Oil accounted for over 44% of Russia’s federal budget revenue in 2015 and the more positive pricing conditions of late are enough to stimulate Russian spending growth this year. Leading the way will be Rosneft, which plans a 20% increase

in its E&P budget to an estimated $11.6 billion. Gazprom’s spending will rise 7% to about $8.8 billion, and both Bashneft

and Surgutneftegaz will spend 10% more at $1.1 billion and $3.8 billion, respectively. Private Lukoil will grow spending by 15% to almost $7.7 billion, the survey said, while Russia proper and regional companies Tatneft, MOL, Novatek and KazMunaiGas all plan to spend substantially less. Azerbaijan’s SOCAR has not announced its 2017 spending plans yet.

NORTHERN EUROPEUNITED KINGDOM OPPORTUNITY2-Licences. 4-Blocks. 729.6 sq km.SOUTHERN NORTH SEAPermian Zechstein Carbonate Play. DSMultiple Leads Identified.EQUITY & OPERATORSHIP AVAILABLE NORTHSEEKING JV PARTNER SEAEst. Prospective Resource: >1.0 TCFCONTACT AGENT FOR MORE INFODS 1970FO

SOUTHERN NORTH SEA BLOCK1-Licence. 3-Blocks.SOUTHERN NORTH SEA DVLower Carboniferous Sandstone.Awarded In 28th Promote Round. NORTHVintage 2D Seismic Data Available. SEAEQUITY & OPERATORSHIP AVAILABLESEEKING JV PARTNERSEst Prospect Resources: >200 BCFCONTACT AGENT FOR MORE INFODV 1971FO

UNITED KINGDOM PROSPECT1-Block.CENTRAL NORTH SEA DVOne Upper Jurassic Prospect.100% EQUITY AVAILABLE FOR SALE OFFSHOREUnrisked Mean Resources: 68 MMBOECONTACT AGENT FOR STATUS UPDATEDV 1474FO

OCEANIA/SOUTH PACIFICAUSTRALIA EXPLORATION FARMOUT1-Permit. 800 sq km.NORTH CARNARVON BASIN DVLarge Structural Prospect Identified With--Additional Structural & Stratigraphic Leads. UP TO 50% WORKING INTEREST AVAIL Est Mean Prospective: 1.4 TCF CARNCARVONP10 Upside: 2.0 TCFCONTACT AGENT FOR MORE INFODV 8005FO

Worldwide E&P spending going up in 2017 Continued From Pg 6

Russia/FSU Estimated Spending

Note: Dollars in millions *Our estimates include leading Russian spenders including Gazprom, Lukoil, Rosneft and others.

0 10,000 20,000 30,000 40,000 50,000 60,000

'14 '15 '16E '17E

-5%+10%-24%

Source: Barclays

At 8.8%, Latin America exhibiting above-average. growth in spending.

Pemex & YPF will benefit from others doing the spending this year.

Continues On Pg 8

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InternatIonalCapItal 8 February 2, 2017

Africa will see just 2% more E&P spending this year—Sonatrach, Sonangol and NNPC account for about 94% of total African E&P

spending, and each will spend more this year. Algeria’s Sonatrach is increasing spending 5% to $6.825 billion, Angolan NOC Sonangol is going up 6% to $6.68 billion,

and the Nigerian state-owned firm will increase spending by 10% to $3.3 billion. Of the non-NOCs producing in Africa on the Barclays survey, Oryx Petroleum and Ophir Energy are logging the biggest percentage gains

at 69% to $54 million and 48% to $230 million, though Oryx will use some of that money in Kurdistan.

Independent big spender Tullow Oil, on the other hand, is curtailing E&P spending 56% to $400 million, still a bigger budget than most but smaller than recent years when it was in the throes of developing Tweneboa, Enyenra, Ntomme (TEN) fields offshore Ghana.

TEN has been up and running since September, so Tullow simply doesn’t have to spend as much this year. It will put about $90 million toward other projects in

Ghana, $100 million toward Kenya pre-development and $125 million into Ugandan projects. In fact, Uganda will be

cheaper for the company now that it has agreed to sell 21.57 percentage points of its 33.33% stake in four Ugandan blocks to Total for $900 million.

Other companies appearing in the African sample were Kosmos Energy, spending 55% less, Africa Oil, Bowleven and Solo Oil. Total spending for the 10 sample companies totals $17.9 billion.

Indicators lead to increased Chinese spending this year—CNOOC was the first Chinese state-owned oil enterprise to disclose its 2017

spending plans, and if its 40% capex hike up to the range of RMB 60-70 billion ($8.7-10.2 billion) is any indication of Chinese spending sentiment in the year of the fire rooster, it’s going to be a very busy year for China’s oil sector. CNOOC will raise its E&P budget alone by 28% to $7.86 billion, or over 83% of overall capex at its midpoint of $9.45 billion, per the Barclays survey. Reuters reported that Chinese oil majors are expected to increase their 2017 spending for the first time in years, particularly for optimizing the output from aging domestic fields. The company will also increase activity in the Gulf of Mexico.

Worldwide E&P spending going up in 2017 Continued From Pg 7

CNOOC’s Spending Rise May Signal Similar Rises Among Peers

2017201620152014201320120

102030405060708090

100110

Billi

on Y

uan

Note: 2017 shows higher-end of full-year target; 2013 excludes spending on Nexen purchase & other acquisitions.

Source: Bloomberg

Nigeria’s lack of energy bill has cooled down investment in country.

Tullow spent $4.9B to develop & bring TEN to first oil, achieved last Aug.

Continues On Pg 9

Analysts estimate increased spending among other Chinese oil SOEs this year.

Watson said the company would tighten spending and implement cost-control measures. He said the company’s 2016 milestones included first gas and cargo shipments at its Gorgon project in Australia, first gas at its Chuandongbei project in China, and increased production from its Permian Basin shale and tight oil properties.

For the year, Chevron lost $2.0 billion in its US upstream segment, halving its $4.0 billion loss for FY15, and lost $483 million

in its non-US upstream business compared with $2.1 billion in earnings in FY15.

Chevron’s US downstream business earned $1.3 billion in FY16 compared with $3.2 billion in FY15. Non-US downstream earned $2.1 billion compared with $4.4 billion in FY15.

Cash flow from operations in 2016 was $12.8 billion, compared with $19.5 billion in 2015. Excluding working capital effects, cash flow from operations in 2016 was $13.4 billion, compared with $21.4 billion in 2015. Chevron closed out the year with cash and equivalents of $7.0 billion, a decrease of $4.3 billion from the end of 2015. Total debt at Dec. 31, 2016, stood at $46.1 billion, up $7.5 billion from a year earlier.

Capital and exploratory expenditures in 2016 were $22.4 billion, compared with $34.0 billion in 2015. Expenditures for upstream represented 90% of the companywide total in 2016.

Exxon & Chevron report lower earnings Continued From Pg 6

Chevron thinks workforce size about right after cutting 4,000 employees.

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Volume 09, No. 02 9 Marketalert

Access PLS’ archive for previous energy finance news

“CNOOC’s higher spending fits into a global pattern that oil firms are adjusting up their capex this year after two years of slumps,” according to Wood Mackenzie analyst Wang Yushuang. Indeed, this would be CNOOC’s first annual spending increase since 2014. Analysts say it’s very likely that PetroChina and Sinopec, which will announce their capex plans in March, would follow suit.

They too would be dedicating a large portion of capex to the lower-risk mature fields rather than starting new oil production, but new gas fields might be the priority as well. Estimates are for PetroChina to increase E&P spending by 15% to over $23.5 billion and Sinopec up 21% to $8.7 billion.

“We believe $50-$60 will be the new normal for the next couple of years,” Wang Haitao, head of private Chinese oil service and equipment company Kerui

Group, told Reuters. “Once oil is above $50, it’s

no longer a pessimistic figure.” In a happy sidenote, Kerui itself would benefit with 10-20% more revenue this year as its mostly global clients spend more on drilling.

Though it will spend more, CNOOC’s 2017 oil and gas output estimate is 3.3-5.5% lower than last year’s at 450-460 MMbo, a level it expects would hold through 2019. Last year, China’s crude output was the lowest since 2009 and analysts think it will drop 12% more by 2020.

Mixed results elsewhere in Asia, but PTTEP spending 95% more—In Southeast Asia, PTTEP announced plans to spend $2.9 billion on capex and

opex in 2017, with the Barclays numbers coming in at $2.72 billion for E&P spending. That’s a huge 95% increase YOY. Projects in the home base of Thailand will receive 64% of the estimated capex, while neighboring Southeast Asian countries will account for 24% of the spending, mainly for producing assets offshore Myanmar. Spending in Australia, Africa and North and South America will take up the remaining 12% of PTTEP’s budget this year. The company also set a budget for the next five years of $14.95 billion.

Malaysian NOC Petronas is expected to make an FID on the $11.4 billion Pacific NorthWest LNG project in Canada in April, but otherwise it’s going to be a tepid year

with capex not likely to rise and E&P spending forecast to go down 10% to $8.75 billion. Also, Malaysia’s portion of the OPEC output decrease commitment is 20,000 bo/d reducing the likelihood of spending more.

Indonesia’s Pertamina said it would spend $6.67 billion on capex this year, with $6.0 billion in E&P, off from the $6.9 billion total capex last year but up 28% from the $4.7 billion it spent on E&P.

Worldwide E&P spending going up in 2017 Continued From Pg 8

China has given its Big 3 oil companies more decision-making authority.

Indian SOEs Target Vs. Actual Spending 1Q17-3Q17Company Annual Spending

Target ( in crore)Actual (4/1-12/31)

(in crore)ONGC Videsh Ltd. 14,843 16,519

Oil India 29,307 18,978

GAIL 1,929 1,253

IndianOil 15,395 15,423

Hindustan Petroluem 6,862 3,337

Bharat Petroleum 13,097 11,977

1 crore=10,000,000 rupees=$147,423 Source: the Economic Times

PetroChina & Sinopec will announce definitive spending plans in March.

OPEC member Malaysia cutting output by 20,000 bo/d, needs less capex.

Continues On Pg 10

That’s over 40% of last year’s stellar growth just in the first month. Reuters reported that Permian electric contractor for oil rigs Gesco in Midland could easily see 100 more rigs in the basin by June.

More deal-making leads to more spending, and eight pure Permian or Permian-focused E&Ps have boosted 2017 exploration and development

budgets by an average 67%, a dramatic turnaround after a 41% investment cut between 2015 and 2016. Production guidance showed an expected 37% output boost after just 7% growth between 2015 and 2016.

Upstream spending will increase this year as a result of greater activity and oilfield service cost inflation, according to Barclays. E&P companies have benefitted from oilfield service pricing near breakeven levels but more than 79% of the E&Ps surveyed expect an increase in costs in 2017, though 55% of respondents expect costs to increase under 10%. Large-cap E&Ps will spend about 58% more while midcaps will increase spending 43%. Independents in the US will spend flat YOY.

Among those spending more this year are Diamondback Energy, which has plans to spend $700-900 million this year compared with last year’s $500-650 million. Concho Resources upped its capex budget 25% to the $1.2-1.4 billion range and Energen is spending 62% more this year after cutting back 55% last year.

Capex to increase two-thirds in Permian Continued From Pg 1

Increased spending rising may in small degree rest on slightly higher OFS fees.

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InternatIonalCapItal 10 February 2, 2017

Aside from the big three Chinese firms and these three NOCs, the 15-company Barclays sample also included Inpex, PetroVietnam, Pakistan’s OGDCL, Santos, Oil Search, Soco International and Indian companies ONGC, Cairn India and Reliance.

Early numbers may not support it, but Indian budgets could come up—India, which overtook Japan as the world’s third-biggest oil consumer, is expected

to be the fastest-growing oil consumer by 2035, according to the BP Statistical Review of World Energy. Are its myriad of national oil companies and private energy firms investing into that position? Not according to the Barclays numbers: ONGC’s E&P spending will be flat this year at $4.5 billion, Cairn India will also be flat at $100 million, and Reliance Industries will step up spending 2% to $245 million.

However, the fiscal years for the state-owned firms close March 31; it’s anticipated that spending plans would be announced closer to their year-ends. According to the Economic Times, the Indian

government has encouraged the state firms to invest big and quickly in order to replenish falling private investment in the country. In the aggregate, the state oil companies have spent 90% of their targeted funds

in the first three fiscal quarters. ONGC Videsh has exceeded its target by 11% and IndianOil is just slightly over. ONGC and Oil India are under pressure to boost India’s crude oil output, in decline for years, and curb reliance on imports. Budgets may rise in the spring.

'Down Under' is above and below on spending this year—Australia’s Santos said will spend $700-750 million this year after cutting that by

53% last year to $640 million. It expects to produce 55-60 MMboe and generate sales volumes of 73-80 MMboe compared

with production of 60-62 MMboe and volumes of 81-83 MMboe in 2016. The

company said it would focus on five core, long-life natural gas assets: Cooper Basin; GLNG; PNG; and Northern Australia and Western Australia gas. The remaining assets will be packaged and run separately as a standalone business. Santos plans to identify additional gas supply.

Meanwhile, Woodside Petroleum is cutting capex 8% this year to an estimated $1.29 billion as it expects to deliver new LNG production from Wheatstone starting mid-year, execute its Greater Enfield oil project, appraise Senegal and Myanmar assets, and spend exploration money on two wells in Myanmar and one each in Australia, Gabon and Senegal.

Beach Energy’s FY17 capex will range $180-200 million with ~55% of the budget considered discretionary. Of this component, nearly two-thirds is allocated to its high-yielding Western Flank oil and gas assets, with the remainder allocated to its SACB and SWQ joint ventures.

Some Australian companies run on a fiscal year ended June 30—BHP Billiton is one of them and is in the midst of spending its $1.4 billion in announced capex last July. It’s a 44% reduction from FY16’s $2.5 billion.

SOUTHEAST ASIAVIETNAM OPPORTUNITY1-Block. >1,800,000-Acres. (>7,000km2)SONG HONG BASIN DVNumerous Faulted Structures. OFFSHOREUP TO 50% WORKING INTEREST AVAILCONTACT BLOCK OWNER FOR INFODV 1178FO

SOUTHERN AFRICA OPPORTUNITY2-Permits.OFFSHORE NAMIBIA5 Principal Cenomanian Sand Prospects. DVWater Depth: 300-700mSEEKING JV PARTNER OFFSHORETotal Rsrce Potential: 2,325 MMBBLSWell Costs: $40,000,000CONTACT AGENT FOR MORE INFODV 1880FO

SOUTHERN AFRICAOFFSHOURE SOUTH AFRICA PROSPECT1-Block. 6,223km2.OFFSHORE DVTwo Identified Prospects.Up To 15% Equity Available. JVMean Resource Estimate: 608 MMBOCONTACT BLOCK OWNER FOR INFODV 8954FO

SOUTH AFRICA DEVELOPMENT1-Permit. 3-Producing Wells. 270km2.BREDASDORP BASIN PP1 Exploratory Well, 5 Appraisal Wells.Water Depth: 118m to 400m OFFSHORE10% EQUITY IS AVAILABLEResource Potential: 748 BCFCONTACT PERMIT OWNER FOR INFOPP 1662FO

Worldwide E&P spending going up in 2017 Continued From Pg 9Did You Know?

Overall gas investment slowing down this year –LNG capex most likely peaked in 2014-2015 at more than $50 billion and will continue to drop through 2020, according to Barclays data. The bank expects 2017 to be lackluster for FIDs related to LNG projects as un-certainty about future pricing terms lingers. Current LNG projects being built are thanks to earlier sanction-ing, such as US Gulf Coast plants and Yamal, but contractors could expect steep work declines after 2018 unless decisions are made to put capital to work on new LNG projects.

Woodside’s $1.29B Projected Capex off 8%

~520385 ~400

~800

755

~370

~150

90

~280

~210

176

~110~50

452

~80

258

0

500

1,000

1,500

2,000

2,500

2016 Guidance 2016 2017E

US

$ m

illio

n

ScarboroughSenegal

MyanmarOther growth

Greater Enfield

WheatstoneBase business

Capital expenditure

Acquired assets

-15%-8%

-16%

Source: Woodside Petroleum Jan. 19 Presentation via PLS docFinder

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