Upstream oil and gas spending in Latin America is on track for a modest year-to-year (y / y) recovery in 2021 after a slowdown due to a pandemic in 2020, according to Evercore ISI.
Exploration and production (E&P) spending at some companies in the region fell 14% year-on-year in 2020, Evercore analysts said in the company’s 2021 global E&P spending outlook. The report, based on a survey of nearly 250 oil and gas companies around the world, was completed in May and released on June 10.
Last year’s drop in spending was more modest than the 26% drop predicted by Evercore in its first 2021 survey released late last year. As a result, investments by some companies in the region are now expected to grow 10% year-on-year in 2021, up from a previously forecasted 27% increase, the Evercore team of researchers led by James West said. The national oil companies (NOCs) are the driving force behind the revisions.
Spending in the region “has generally rebounded in a narrow band from the trough in 2017, with investments in 2021 around 16% above the trough in 2017, 5% below levels in 2019 and 56% below the peak in 2014″, the researchers said. “E&P investments in Latin America are now roughly at 2018 levels.”
Latin America represents around 10% of global investments in E&P. Mexican state-owned company Petróleos Mexicanos (Pemex) and Brazilian company NOC Petróleo Brasileiro SA (Petrobras) account for more than 60% of regional upstream spending, the Evercore team said.
The researchers said that while Pemex’s oil production fell 1.6 percent year-on-year to 1.75 million barrels per day in the first quarter of 2021, the national oil company’s 2021-2025 business plan predicts an increase in production to 1.95 million barrels per day in 2021 and 2.16 million. b / d by 2025.
“A new onshore discovery in Tabasco state estimated at 500-600 million boe adds to a group of earlier discoveries for total resources of up to 1.2 billion boe,” the researchers said. Pemex proposes to drill 65 wells over three years to bring 138,000 bpd of oil production online.
They also noted that in April Pemex obtained approval from upstream regulator Comisión Nacional de Hidrocarburos (CNH) for a modified $ 1.63 billion development plan on the Poza Rica asset targeting the Chicontepec formation.
Pemex spent billions for the development of Chicontepec during the administration of President Felipe Calderón (2006-2012). However, the results were disappointing due to the difficult geological conditions and the high decline rates of the wells.
Poza Rica’s development plan includes the drilling and completion of 345 wells, as well as 122 well reconditioning, from 2021 to 2034.
The Evercore team also noted that plans are moving forward with the Trión field operated by BHP, which would be Mexico’s first deepwater oil project. The plans include a floating production unit capable of processing 100,000 bpd, “with BHP being able to sanction Trion in 2022 for the first oil in 2025 or 2026,” the researchers said.
Brazil is also on the verge of a recovery in activity.
“After sanctioning the giant pre-salt fields of Buzios and Mero, Petrobras is launching a new exploration campaign in the Campos basin to unlock new pre-salt clusters,” Evercore researchers said.
They cited that ExxonMobil, TotalEnergies and Equinor ASA “have also stepped up their activities off Brazil, with Equinor due to sanction Bacalhau later this year.”
The researchers also noted recent comments by Brazilian Minister of Mines and Energy, Bento Albuquerque, dismissing the International Energy Agency’s claim that no further investment in oil and natural gas fields is should be sanctioned if the world is to achieve a carbon neutral economy by 2050.
Researchers said the collapse in global E&P spending last year was among the worst slowdowns in history, but 2021 is the start of a multi-year recovery that will accelerate through 2022 and beyond. .
The outlook indicates that US producers remain a bit cautious about their investment plans. However, as Henry Hub natural gas and West Texas Intermediate (WTI) prices strengthen, E&P could increase spending in the second half of this year.
“The US economy may be booming, but the E&P operating base is shrinking as a result of consolidations, bankruptcies and breakups. Internationally, investment growth is mixed, with certain regions such as Europe and the Middle East accelerating, while somewhat more modest growth is expected for Latin America and Russia.
The “new multi-year recovery starts slightly slower, but from a higher base”. Overall, global upstream investment is expected to grow 5% from 2020, around 200 basis points (bps) below the 7% forecast last December.
The report’s authors added, “A coordinated global recovery is on the horizon and we anticipate higher investment growth for the United States, Canada and international markets for 2022 and beyond.
At what price?
The average price outlook for spending in 2022 is based on a price forecast of $ 59 / bbl WTI and $ 2.80 / Mcf Henry Hub.
“Although expectations for oil and gas prices have risen slightly in recent months from very low levels in our mid-year 2020 survey, the average price of oil of $ 59 and the price of gas of $ 2.80 cited for the 2022 budgets are comparable to the averages cited in our community. -year 2019 ”, noted the researchers.
“The $ 10 / bbl spread between the current spot price and the average of $ 59 is also similar to the $ 9 / bbl spread from our 2017 mid-year survey.”
With current spot oil prices near the upper end of the $ 50-75 per barrel range E&P cited for investment in 2022, analysts said there was an “upward bias” for that investments increase from the second half of this year.
Likewise, the average Henry Hub gas price of $ 2.80 for establishing the 2022 capital expenditure is lower than the current spot price of $ 3.10 / MMBtu, which is in the lower half of the range of $ 2.50 to $ 4.00 / MMBtu for budgeting for 2022 and suggests that there may be a hike. also to gas-focused capital expenditure.
With additional reporting by Carolyn Davis