Wood Mackenzie Forecasts Positive Cash Flow at Oil Price Above $55

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A new report by Wood Mackenzie has predicted that the oil and gas industry will turn cash flow positive for the first time since the downturn in 2014, if the production cuts by the Organisation of Petroleum Exporting Countries (OPEC) drive oil prices above $55 per barrel.

Wood Mackenzie’s global corporate outlook for 2017, forecasts 2017 to be a year of “stability and opportunity” for global oil and gas

Senior Vice President of Corporate Analysis Research at Wood Mackenzie, Tom Ellacott, noted in the report that: “most oil and gas companies will start 2017 on a firmer footing, having halved cash flow breakevens to survive the past two years. Further evidence of a cautious, U-shaped recovery in investment should emerge.”

The corporate outlook report titled: “Corporate themes: 5 things to look for in 2017,” assesses the 2017 prospects for the oil majors, independents and national oil companies (NOCs), focusing on five themes, with strengthening finances as the top priority

Wood Mackenzie forecasts production from the 60 companies covered in its Corporate Service to grow by an average of two per cent, which is impressive given development spend was slashed by over 40 per cent between 2014 and 2016.
The report highlights that while portfolios will adapt, and down the cost curve into new energy, there will be modest growth in production despite past capex cuts.

The report also predicted improved value proposition for exploration and mergers and acquisitions, with US independents leading the sector into a new investment cycle

“Overall 2017 will be a year of stability and opportunity for oil and gas companies in positions of financial strength. More players will look at opportunities to adapt and grow their portfolios,” Ellacott said.

“Strengthening finances will still be a top priority. Capital discipline, cost reduction and deleveraging will frame corporate strategies in 2017. But 2016 will prove to be the low point in the investment cycle, with confidence boosted by OPEC’s decision to cut production,” said the report.

Wood Mackenzie expects the trend of improving exploration success rates and full-cycle returns to continue in 2017, with more majors and National Oil Companies stepping up new ventures activity.

“Mergers and acquisitions will also offer an attractive value proposition for the financially strong prepared to take a bullish view on long-term prices,” said Ellacott.

“Low-cost, low-risk discovered resource opportunities will look attractive again. And the larger players will need these to ensure long-term portfolio renewal as part of a more balanced growth strategy,” Ellacott added.
According to Wood Mackenzie’s analysis, the US independents could increase investment by over 25 per cent if oil prices average above $50 per barrel.

The report added that the spend for the bigger players will continue to trend down – total investment by the majors will fall by around eight per cent as recent capital-intensive projects wind down.