More interesting than scaling the current market is to forecast the market going forward, taking into account the aging of existing fields, new discoveries to be made and developed, consequences of trends like increasing unconventional and deep-water developments, etc.
In this respect operator budgets are of limited value. Operators have a limited planning horizon, and budgets will only include short term investments. Forecasts based on budgets consistently show a short term increase and then drop off, despite all the facts pointing to a continuous activity level.
Rystad Energy has taken the efforts to build a complete database of oil fields, discoveries, and yet-to-be-discovered assets. We have taken the liberty to develop the assets long before they appear at the companies’ decision gates, and broken down the costs. This consistent and systematic approach provides us with a strong basis for forecasting of E&P production and costs.
An example of this is shown in Figure 1, where we have compared Capex forecasts for Norway made in 2007. As expected forecasts based on operator reported plans drop off after some years. Rystad Energy’s bottom-up forecast showed steady growth, and was the only source that ended up close to actual investment levels. Rystad Energy estimate was 6% and 8% below in 2008 and 2009. OED NB2007 was 25-30% below for all years. OLF was 12% and 27% below in 2008 and 2009. Statistics Norway ended up 34% below actual for their 2008 forecast.
Note that real investments also exceeded Rystad Energy’s estimates.
Figure 1: Comparison of future Capex investment forecasts from 2007 from OLF/ECON, MPE/National Budget 2007, Statistics Norway (SSB), and Rystad Energy.
Notes
• OED and OLF numbers were given in real values. Adjusting for that gives NOK 87 billion in 2010, or NOK 30% below actual.
• For OED, exploration costs were not included. We have included a fixed cost of NOK 12 billion all years for exploration, which was the 2006 exploration spend
Web addresses for public sources used here:
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http://www.regjeringen.no/upload/kilde/oed/tar/2006/0095/ddd/pdfv/302294-trondheimnaeringsforening151206.pdf
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http://www.olf.no/PageFiles/1477/OLFs%20Konjunkturrapport%202006.pdf
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http://www.ssb.no/oljeinv/arkiv/tab-2007-06-07-01.html