Class of 2022: benchmarking this year's upstream FIDs Report

Insight 07 March 2022

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Report summary

Oil and gas operators find themselves at the crossroads of capital discipline and supply growth. Prevailing prices are more than double most planning assumptions, but industry uncertainties have never been higher. This could be a big year for upstream FIDs but operators will continue to focus on managing costs and some may move quickly to mitigate the impact of cost inflation. Overall, the class of 2022 has appealing economics and emissions intensities.

Executive summary
- Project returns remain attractive while emissions intensity trends down
- Appealing economics and favourable emissions intensities for the class of 2022
- But less resilience to lower oil prices than previous years
- Middle East and Norwegian projects are the most shielded from cost inflation
Slides and key messages
- Summary and context
- Pre-FID projects are an important component of industry investment and supply themes
- 2022 on track to continue momentum seen in H2 2021
- Class of 2022 projects have a higher unit cost than 2021
- 2022 off to a quick start with five major projects sanctioned so far
- Clear improvement in project quality
- Detailed economics
- IRR’s and payback remain critical metrics for investment scrutiny
- Short cycle offshore projects outperform on both metrics
- Fiscal systems have a major impact in some low IRR projects
- Long life projects have relatively lower returns but are strategically important
- Average 2022 breakevens are robust, with US$49/bbl required for a 15% IRR
- Operators will look to lock in prices and sanction projects early to mitigate potential cost inflation
- Under our base case valuation, 2022 projects are less profitable than those in 2021
- Brownfield projects in the Middle East have the most attractive P/I metrics
- Some projects are challenged at US$50/bbl
- Oil price sensitivity
- Emissions and decarbonisation
- Scope 1 and 2 emissions intensity much lower than the global onstream average
- Carbon emissions an increasingly important consideration
- Carbon benchmarking: value at risk
- Value at risk is sensitive to resource theme and underlying project economics
- Fiscal benefits make the difference to asset economics (and % of value at risk).