So far this year, oil prices have risen by 29 percent, and things are looking towards the oil industry.
According to Goldman Sachs analysts, the oil and gas capital expenditure cycle is a turning point, as seven years of decline have reduced spare capacity in most areas of the industry, and the Russia-Ukraine conflict reveals a renewed sense of urgency in supply security.
Five key themes are cited by the analysts.
1) "Shrinking reserves: oil reserve life increased to 25 years in 2022, a 52% drop from 2014, as the oil industry stopped looking for new resources. Investment delays since 2014 will cost 10 million barrels per day of oil production equivalent to Saudi production by 2024."
2) "Steepening cost curve: the top projects cost curve has become smaller and steeper, with incentive pricing at $90 per barrel at the current capital cost."
3) "Investment growth: We expect oil and gas consumption to double at 11% [per year] growth (20% for LNG and shale) by 2024, compared to a 7% decrease since 2014. "
The analysts say the trough will lead to "a series of investment decisions."
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4) "We anticipate that 2019 saw significant non-OPEC production." Non-OPEC, excluding shale and Russia, is beginning a phase of structural decline, according to analysts.
According to reports, a decline of 300,000 barrels per day would follow, adding to a depleted pipeline of major project start-ups that are accelerating decline rates and causing project delivery to be hampered.
5) "Spare capacity no longer: we anticipate an increase in OPEC production of as many as 3 million barrels per day by 2025," analysts said.
That would "deplete OPEC spare capacity by 2023, with limited capacity expansion until 2024."
Goldman Sachs has created a list of top oil stocks, including screening for projected production growth for 2021-24, cash flow growth from top projects over the next five years, quality of the growth portfolio, opportunity set, and country and technical risk.
Hess () -, Pioneer Natural Resources () -, Conoco Phillips () -, Kosmos Energy () -, EOG Resources () -, Exxon Mobil () - and Continental Resources () - are among the most successful U.S. businesses in order of ranking.
Exxon Mobil is owned by the author of this book.
