Westwood’s Global Exploration and Appraisal Wildcat team presents the 2022 Upstream Oil and Gas Review.
2022 was a turbulent year for the oil industry which was caught in the tension between an increasing urgency to transition away from fossil fuels and societal pressures to maintain affordable levels of energy supply. This report reviews the volatility of commodity prices in 2022 and its impact on the finances and equity valuations of oil companies as well as the deal space of upstream mergers and acquisitions. The report then considers how the events of 2022 may impact the sector in 2023.
In summary:
- A supply shock induced by conflict in Europe drove oil prices up to an average $101/bbl in 2022 with European spot gas prices up to an incredible $623/boe in August.
- Oil companies gushed cash and shareholders enjoyed a bonanza – 44 cents in every dollar of cashflow went to shareholders and 12 cents to increased capital expenditure.
- Supermajors slowed down their asset sales and smaller cash deals dominated with private equity remaining a net buyer.
- Uncertainty in demand and supply will continue into 2023 and whilst a range for Brent of US$70-90/bbl seems reasonable gas prices will remain volatile and hard to predict.
- Capex budgets should increase through 2023 although increases are likely to be modest.
- Portfolio rationalisation of the supermajors may come to an end, although E&Ps that continue to focus on hydrocarbon production will be willing buyers of assets.
- Further exits from upstream by companies that have prioritised the energy transition may occur in 2023.
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