Wood Mackenzie Reports US$200 Billion Hole in Oil Industry’s Investment Pipeline

Wood Mackenzie reported that US$200 billion in investments into the oil industry has been delayed due to low oil prices, resulting in over 45 major project final investment decision (FID) deferrals.
As quoted in the market news:

By year-end we may be able to count the number of major upstream projects that reached a Final Investment Decision (FID) during 2015 on one hand. The dramatic fall in oil prices in 2014 and subsequent dismantling of 2015 company budgets has, by mid-year, already resulted in over 45 major project FID deferrals.
As a result, we estimate 20 billion boe of reserves has been pushed back from a diverse range of onshore, shallow-water and deepwater projects. Together, this creates a US$200 billion hole in the industry’s investment pipeline.
Projects that are technically challenging, have significant upfront costs and/or low returns have proved vulnerable – over 50% of the 20 billion boe is located in deepwater projects, and nearly 30% in the Canadian oil sands.
Inflationary pressures have pushed many projects into economically marginal territory and operators are now reworking costs and development solutions to achieve their hurdle rates. But it won’t be easy. We estimate that half of the new greenfield developments still produce sub-15% development IRRs, which is below most companies’ economic hurdle rate.

Click here to read the full Wood Mackenzie report.