OPEC’s production deal and recent crude price strength should make 2017 a more profitable year for upstreams, according to a report from Wood Mackenzie.
According to a report seen by CNBC, the consulting firm expects that the oil and gas industry will largely see positive cash flows in 2017 if crude prices can hold at $55 per barrel or higher.
The report studied 60 oil and gas firms ranging from international majors, state-owned companies and independents.
Wood Mackenzie research director for upstream oil and gas Angus Rodger told CNBC that if oil prices retreat to $50 per barrel of lower than companies that are in “negative territory” will “go back into survival mode.”
Rodger added that, if OPEC’s production plan achieves a 75 percent compliance level, oil prices should average $57 per barrel next year.
OPEC members agreed earlier this month to cut production down to 32.5 million barrels per day, a 1.2 million bpd reduction from the group’s record-breaking October level.
A group of 14 non-OPEC members, including Russia, have also agreed to trim their total output by 558,000 barrels a day.
Head of corporate research at Wood Mackenzie Tom Ellacott told the Financial Times that most energy firms will start off the new year “on a firmer footing” after slashing their cash flow break-even points to cope with low prices.
“Further evidence of a cautious U-shaped recovery in investment should emerge,” Ellacott told the paper.
Ellactott told the Financial Times that U.S. firms will likely lead the recovery, with the Permian Basin expected to attract large investments.
The Permian Basin, located in Texas, has already seen a surge in upstream interest despite low oil prices.
According to the U.S. Energy Information Administration, the Permian Basin now holds nearly as many active oil rigs as the rest of the United States combined, including both onshore and offshore rigs.
S&P Platts recently reported that wells in the Delaware and Midland basins in the Permian will be the big winners as crude prices rise thanks to attractive rates of return.
Wood Mackenzie currently expects oil prices to average $55 per barrel throughout most of 2016 and 2017, CNBC said.
The firm is forecasting crude prices to rise to about $60 per barrel by the end of 2017.
According to a copy of the report seen by Rigzone, the 60 companies included in Wood Mackenzie’s report are expected to boost capital expenditures by an average of 2 percent after two years of spending cuts.
Ellacott told Rigzone that next year should be “a year of stability and opportunity for oil and gas companies in positions of financial strength.”