* Spending to rise 3pct to $450bln after two years of cuts
* U.S. shale to get most investment growth
* Deepwater projects set to get green light as costs drop
* GRAPHIC: Oil project FIDs tmsnrt.rs/2iAE2BQ
By Ron Bousso
LONDON, Jan 11 Oil and gas companies will
increase spending in 2017 and more than double new project
developments as they gain confidence that a two-year oil price
slump is behind them, consultancy Wood Mackenzie said.
The upbeat outlook follows a more than 20 percent rise in
benchmark crude oil prices in the past two months to around $55
a barrel on the back of an agreement by major producers to trim
"We've just come through two years of gloom and lots of
costs cutting and now we are cautiously optimistic there will be
a start of recovery in 2017," Malcolm Dickson, a principal oil
and gas analyst at Wood Mackenzie, said.
According to WoodMac's global upstream outlook for 2017,
exploration and production spending is expected to rise by 3
percent to $450 billion. This is still 40 percent below 2014
Geographically, the increased activity will vary hugely.
U.S. shale oil production is expected to account for most of the
gains because it is relatively cheap and quick to develop, in
some cases it can take only 6 months.
Shale was the main driver of the recent supply glut and also
experienced the sharpest declines in terms of output during the
Production in the most attractive shale areas, particularly
in the Permian basin in Texas, is currently profitable with oil
at $40 to $60 a barrel, according to WoodMac analyst Tom
U.S. shale oil production is expected to grow by around
300,000 bpd in 2017 to around 4 million bpd, according to
WoodMac forecasts oil prices to average $57 a barrel in 2017
and gradually increase to $85 a barrel in 2020 as supplies
decrease due to the investment cutbacks of the past few years.
Aside from onshore U.S. production, oil companies globally
have also been able to reduce costs of field developments
sharply by simplifying engineering plans and lowering contractor
and rig rates.
Costs have fallen by 20 percent since 2014 and are expected
to decline by an additional 5 percent this year, according to
The savings are having a profound impact on project
profitability, including costlier deepwater projects, some of
which are profitable at oil prices of $50 to $60 a barrel.
The number of final investment decisions for projects with
resources bigger than 50 million barrels of oil equivalent will
more than double in 2017 to 20 to 25 from only 9 in 2016.
Projects most likely to get the nod include Exxon Mobil's
Liza discovery offshore Guyana, deepwater projects in
Brazil and in the Gulf of Mexico. BP late last year
approved the development of the second phase of the Mad Dog
field in the Gulf of Mexico and its partners will decide on it
But the pick up in activity is still not enough to cover a
growing supply/demand gap, which WoodMac expects will widen to
20 million barrels per day by 2025, based on current development
"You need the new projects to be sanctioned by 2020 to meet
future supply gap," Ellacott said.
(Reporting by Ron Bousso. Editing by Jane Merriman)