BAKU, Azerbaijan, June 29
By Leman Zeynalova – Trend:
The Caspian Sea region’s upstream sector needs highly-experienced IOCs because of the complexity of its largest prizes, Ashley Sherman, principal analyst on Wood Mackenzie’s Russia and Caspian upstream team, told Trend.
“But those companies are managing their future upstream investment more tightly than ever before. For the majors in the region base megaproject operations largely remain close to the core of the core and large-scale discretionary investment options struggle to meet key commercial hurdles. Without significant optimisation, breakeven prices are typically too high and payback periods too long,” he said.
Sherman noted that too many major capital projects of the past have suffered cost blowouts and delays. “New investment must be nimbler, weaken the region’s cost premium and enable early monetisation from shorter capital cycles. Pre-tax economics are a fundamental challenge. Most of the largest pre-FID projects – brownfield and greenfield – do not generate a before-tax IRR above 20 percent. For greenfield developments, basic synergies must finally come to the fore.”
The region’s upstream investment mix mirrors its top-heavy production profile. The majority of spend is at the five majors led megaprojects in Kazakhstan (Kashagan, Karachaganak and Tengizchevroil) and Azerbaijan (ACG and Shah Deniz), he added.
Follow the author on Twitter: @Lyaman_Zeyn