New risky investment possibilities after OPEC deal.

18. December, 2016 News No comments

Two years of constant falls in oil industry were the main factor why OPEC members decided to cut production rate. After big spending cuts in 2015 and 2016 price per barrel is now above $50 and in economic forecast it should rise. Time has come for unaffiliated countries to think about making new investments until oil is still climbing up the ladder.

Although oil price is still low, Patric Pouyanne – chief executive officer of Total SA has warned that constant investments cuts can end up with oil-supply shortfall in next few years. Referring to this, they will consider whether to start developing expensive new projects.

Many influential people say, there’s no looming supply gap, and this is why companies remain conservative, cutting spending in order to boost cash flow. In the last two years many companies have focused on expanding existing facilities, not creating new ones. Now because industry is so hard to sound out, it’s just like skating on thin ice – no one knows how long will OPEC deal be respected. All investors know it and after two difficult years they don’t want to risk any more. Although who will risk now can be really successful in the end.

Just before crisis in oil industry Total made major investments in new projects which had caused huge headache for this company in 2015 and 2016. Now Total is preparing to plan their capital spending in 2017, including development of the Libra deep-water field off Brazil, an onshore project in Uganda and second phase of the Zinia offshore field in Angola. Pouyanne said, that Libra and Zinia phase two could be extremely profitable with oil at $50.

Analytics claim that actual oil price increase would be short term rise, rather than long term one. This however does not change companies investment directions. Total is reducing capital expenditure to a range of $15 billion to $17 billion a year from 2017 to 2020, compared with $18 billion this year and a peak of $28 billion in 2013. Investing at this time in oil industry seems to be really hard thing to do wisely. As Guillaume Chaloin said: “Exploration at $40 per barrel is more complicated than at $100”.

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