Upstream Oil and Gas Will Have Another Strong Year in 2023

Aggregate upstream spending will rise sequentially this year, an analyst at Moody's Investors Service outlined.


The upstream oil and gas sector will have another strong year in 2023 based on favorable supply-demand fundamentals, although average energy prices will not reach their high 2022 levels.

That’s what an analyst at Moody’s Investors Service stated in a recent report from the company, which was sent to Rigzone.

“Most producers will generate solid free cash flow and will have the financial capacity to reduce leverage, boost or maintain shareholder returns, reinvest or make acquisitions,” the analyst stated.

“Larger, lower-cost exploration and production companies and large integrated oil companies will deliver the strongest free cash flow and have the most flexibility overall,” the analyst added.

“While we expect average prices to stay above mid-cycle levels in 2023, we also anticipate a high degree of price volatility in a delicately balanced global energy market. Various factors will constrain oil and natural gas supplies, while demand growth will waver because of increased recession risks and shifting policies in the largest energy-consuming nations,” the analyst continued.

Sharp price swings will remain a norm, making large or long-term capital investment decisions difficult for companies, the analyst at Moody’s Investors Service said in the report.

Aggregate Upstream Spending

Aggregate upstream spending will rise sequentially in 2023, by about 10 percent to 15 percent, but overall spending will still fall below 2016-19 levels, the analyst outlined.

“More than half of the incremental spending in 2023 will go just to cover cost inflation, leaving relatively little capital for volume growth,” the analyst stated in the report.

“Rising costs for oilfield services globally, a tight labor market in the U.S., and lingering supply-chain delays will all limit any E&P company efforts to expand production capacity quickly in 2023, the analyst added.

According to a chart included in the report, which showed upstream capital expenditure from 2015-2023, this year’s capex is projected to come in at between $460 billion and $480 billion. Last year’s figure is projected to be $417 billion, 2021’s was $384 billion, and 2020’s was $353 billion, the chart outlined. Figures from 2015-2019, according to the chart, can be seen below:

2015 – $663 billion
2016 – $484 billion
2017 – $493 billion
2018 – $526 billion
2019 – $499 billion

Oil Price

Both West Texas Intermediate (WTI) and Brent crude oil prices closed above $100 per barrel on several occasions last year, with the former seeing a peak close of $123.7 per barrel and the latter seeing a peak close of $127.98 per barrel on March 8, 2022.

The WTI price dropped to under $95 per barrel in April 2022 before rising back up to more than $122 per barrel in June 2022 then dropping steadily to just over $71 per barrel in December 2022. WTI has since risen to over $80 per barrel.

Brent fell to under $99 per barrel in April 2022 then rose to more than $123 per barrel in June 2022 before dropping to just over $76 per barrel in December last year. The price has since risen to more than $85 per barrel.

At the time of writing, WTI is trading at $78.79 per barrel, while Brent is trading at $84.48 per barrel.

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