Uncertain global economic conditions have not deterred upstream capital spending. As oil prices continue to rise, companies are increasingly looking in harsher climates and deeper seas to replace reserves and make up for declining production from mature fields. The cost associated with replacing a barrel of produced oil has risen dramatically over the last 13 years, from $6 per barrel in 1998 to $27 per barrel in 2011.
Signals of skyrocketing budgets are evident in this week’s graphic, which appears in the upcoming report from Lux Research’s Exploration and Production Intelligence service. Upstream spending is finally back to pre-2008 levels as producers, excluding NOCs and OPEC organizations, are expected to spend close to $270 billion in 2013. With declining production from the world’s largest fields putting 12% of world oil production at risk, and oil prices in a range that justify large capital budgets, spending is expected to reach $300 billion by 2020 and $400 billion by 2033. Production, however, has remained relatively flat, signaling that the days of easy oil are over.
Unconventional oil will take the charge as a key area of focus for producers. The blossoming tight oil sector in the US has reignited talks of energy independence, but growing investment in offshore drilling is opening foreign reserves. US Geological Survey (USGS) studies suggest that significant reserves are still waiting to be found in deepwater regions of the world. In 2012, 62.5% of unconventional capital spending will be offshore, while 32% will be targeted toward shale plays, and 5.4% will be in the oil sands.