With $185 bln of total investment on the table, WoodMac expects more oil & gas FIDs in 2023

While 2022 brought less final investment decisions (FIDs) than anticipated for oil and gas projects, Wood Mackenzie, an energy intelligence group, outlines that upstream operators will focus on capital discipline and carbon mitigation in 2023 with $185 billion total investment available for sanctioning this year.

According to a new analysis from Wood Mackenzie, upstream oil and gas financial investment decisions (FIDs) will likely increase in 2023, as up to $185 billion of investment is committed to developing 27 billion barrels of equivalent (boe).

Fraser McKay, vice president, Head of Upstream Analysis for Wood Mackenzie, remarked: “Achieving FID on oil and gas projects is harder than it used to be, but with fewer sanctioned in 2022 than was expected, we believe we will see a slight uptick in activity this year, with over 30 of the 40 most viable projects likely to reach this milestone. Most operators will remain disciplined and carbon mitigation will remain a key part of many FID projects.”

Furthermore, national oil companies (NOCs) are expected to control the largest investment opportunities this year, taking advantage of huge, discovered resources, while boasting the lowest unit costs. The average unit development cost of $7/boe in 2023 is down slightly from 2022.

“International oil companies (IOCs) will be focusing largely on higher-cost but higher-return deepwater developments. All will be acutely aware of how oil and gas project sanctions are playing out in the public domain and the scrutiny to which their associated emissions will be subject,” added McKay.

Moreover, Wood Mackenzie points out that projects will require an average of $49/barrel of crude (bbl) in 2023 to generate a breakeven 15 per cent internal rate of return (IRR). However, a weighted average IRR of 19 per cent, at $60/bbl, would be the lowest level since 2018. The company highlights that rapid paybacks will be a key economic indicator with the average for this year’s projects at nine years.

Greg Roddick, Principal Analyst of Upstream Research, commented: “Short-cycle and small-scale offshore projects will outperform in terms of both paybacks and returns. Long-life liquified natural gas (LNG) projects are compromised when it comes to IRRs, but their attractive and stable future cash flows will be strategically important.”

Based on Wood Mackenzie’s research, the class of 2023 emissions intensity of 19 kg CO2 boe is only just below the global onstream average of 22 kg CO2 boe, but similar to that of the Class of 2022.

 “Advantaged deepwater oil and shelf projects will outperform on emissions, but LNG, sour gas and some onshore projects require mitigation measures,” concluded Roddick.