Oil exploration to rise, gains to go down in 2019: Fitch Solutions

Baku, Azerbaijan, Nov.26

By Leman Zeynalova – Trend:

Exploration activity will rise in 2019 versus 2018, but the gains will be limited, according to Fitch Solutions Macro Research (a unit of Fitch Group).

“On an annual average basis, revenues will be boosted by marginally higher oil prices, while still-compressed services costs will flatter margins and bolster cash flows. This will give companies greater flexibility to increase their capex and assume more risk,” said a report from the company.

The company said there are signs that exploration is beginning to recover and this trend will continue into the new year, with increased licensing activity, data acquisition and drilling globally.

“This uptick in exploration is critical, to replenish oil and gas reserves following years of underinvestment. However, despite rising revenues and the pressing need for reserves replacement, companies will face continued constrains on their exploration spending,” said Fitch Solutions.

The company analysts believe that financial discipline continues to be a key concern for oil companies globally and will weigh on capex growth next year.That said, improved capital efficiency and lower services cost means companies can effectively do more with less.

“A bigger issue for 2019 will be how this capital is allocated. As the market has recovered, much of the additional cash has been funneled towards shareholders (through dividends and buybacks ) rather than towards productive investments,” said Fitch Solutions.

The company expects this competition for capital to persist in 2019, continuing to drag on exploration spending next year.

“Through 2019 we expect both emerging market (EM) and developed market (DM) demand will moderate to new levels of ‘normal’; with softening Chinese demand shifting EM demand to slightly lower levels of growth, whereas DM demand will dip as US-led support recedes in the face of ongoing growth headwinds from rising trade tensions. Importantly, we see EMs retake the mantle as the engine of global demand growth. This will hold global growth in positive territory.”

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Follow the author on Twitter: @Lyaman_Zeyn

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