Upstream Pipeline Projects Take a Hit

The oil price crash has hit the upstream sector hard. Deep cuts are being made across the board, but it will have a dramatic impact on the industry’s project pipeline.
Global natural resources consultancy Wood Mackenzie believes almost all pre-FID (final investment decision) projects will be deferred, Worldoil.com reported. 
Of the 50+ projects identified with potential to go ahead this year, only 10 have a chance of proceeding, but all are at risk.
Rob Morris, from Wood Mackenzie’s upstream research team, said: “$110 billion of investment will almost certainly be deferred, with another $100 billion at risk.
“New committed investment could be as low as $22 billion if only the most advantaged projects progress. Corporate balance sheet strength and strategic drivers are much more important than project economics. Only those with the strongest balance sheets will even contemplate major project FIDs. The Majors and certain national oil companies (NOCs) will take the lead, while projects with financially stretched partners and at the higher end of the cost curve will struggle.”
“Five years of cost-cutting and optimization means more than half of 2020’s pre-FID projects generate 15% returns at $50 per barrel. In 2015, less than half of pre-FID projects generated 15% at $85 per barrel and almost none were economic below $50 per barrel.”
Projects which have clear strategic drivers, robust economics and operators with strong balance sheets are advantaged. Deepwater oil and LNG dominate the list.