What industry leaders expect for 2023
We are now two years down the road from the ultimate pandemic year, 2020, and while the global upstream industry has achieved some notable growth during 2022, the recovery continues to have its limits. International activity outside the U.S. and Canada, measured by rig count, is up 12.1% this year vs. 2021. Yet, the 846-rig average over 11 months is still 23% below the figure for 2019. In Canada, drilling is up 35.1% from 2021’s level, yet it is still down 7.3% from the 2019 average. And in the U.S., drilling has jumped 51.4% above 2021’s figure, yet it is still off 17.5% from the 2019 average.
Spending indicators. If you want further confirmation that the recovery is still measured, consider that international spending, according to our friends at Evercore ISI, was up 14.5% this year, at $337.5 billion. Yet, that figure is still 1.9% below the 2019 level of $344.0 billion, and we really haven’t accounted for inflation. In Canada, Evercore says spending has hit $17.7 billion this year, up 33.4% from 2021’s level. However, that figure remains 9.7% below 2019’s level of $19.6 billion. As regards the U.S., Evercore figures show a whopping 45.8% gain in E&P spending during 2022, to $90.7 billion. Even so, this level remains 14.2% below the $105.7 billion figure of 2019.
Factors at play. What the numbers are telling us is that E&P activity has climbed out of the massive ditch that the Covid pandemic brought about in 2020, but it still has not fully regained its 2019 levels. And let us not forget that most of the growth in the U.S. rig count occurred during first-half 2022. There are many reasons for this, including operators’ and drilling contractors’ difficulties in hiring additional personnel, along with continued supply chain issues, inflation affecting prices for equipment and services, fiscal discipline still being practiced by larger independents, and great uncertainty about the regulatory picture, particularly on the federal level in the U.S., UK, Canada and other select countries. Also, in the case of Europe, let us not forget how some countries are diverting funding that might have gone toward oil and gas and putting it into the headlong rush toward renewables.
Advisors’ perspectives. So, once again, as the year draws to a close, our core group of members on the editorial advisory board sorts out what has happened to the global E&P industry over the last 12 months while also doing their best to gauge what may occur in the coming year. Not surprisingly, much of the discussion this time focuses on ESG and sustainability topics.
One of our advisors decries the movement by a number of financial institutions to discriminate against funding oil and gas projects in the name of pushing forward a green agenda. He also points out that bureaucrats in various countries have not thought about the unintended consequences of pulling away from oil and gas. Another advisor dovetails with those thoughts, when he notes that oil and gas development has improved the standard of living for literally billions of people, yet that progress could be halted by the push for renewables. Furthermore, he points out the massive hypocrisy of the EU, which classifies oil and gas as “dirty,” while allowing a massive loophole for the burning of wood pellets (to generate power), which it classifies as “green.”
From a more technical viewpoint, one board member describes how companies that incorporate digital GHG detection technologies into their corporate digital strategies will now be able to optimize carbon management. Still another member believes that the oil and gas industry is uniquely capable of mitigating climate change impacts, if it fully embraces CCUS.
On the political front, one of our advisors does an excellent job at gauging how the mid-term election will affect energy policy, particularly oil and gas regulation, in the U.S. Another advisor describes how energy policy in the U.S. and elsewhere has become one giant exercise in gamesmanship and issues a call for a prescription to fix it.
Last, but certainly not least, our most senior advisor—arguably the finest petroleum economist in the UK North Sea region—explains his assessment that the British oil and gas sector will be in for commodity price volatility and political uncertainties during 2023. Given the actions of the latest regime in London, that pronouncement may be an understatement. Nevertheless, all our advisors are optimistic that a better year can be had by the upstream globally in 2023. Once again, we invite you to read forward for all the details. WO
