The Gist: (1) Oil & Gas capex is back from the dead but the cycle is more akin to a “recovery cycle” than a much larger “reinvestment cycle.” (2) Spending grew ~12%-16% in 2023, and when viewed in real terms spending is in line with recent oil prices. (3) Capex for the Supermajors, E&Ps and Canadian O&G companies continue to remain at very low levels relative to history.
The point I like to get across with this first chart is we are in a recovery cycle for spending, not a much larger reinvestment cycle.
This dawned upon me when I was providing an update on oilfield service returns on capital (HERE) a couple of weeks ago.
They oscillate between two types of cycles: a recovery cycle and a much stronger reinvestment cycle.
We are accustomed to reading about these massive spending cycles that occurred in the 2000s, the 1970s, in the post-World War II years, and the 1920s.
However, between those periods, there was some spending growth, and those are what I call a recovery cycle which tends to occur after an oil price crash like 2020.
I think that's the type of cycle we are in now. I still think there will be a much larger reinvestment cycle probably beginning later this decade into the early 2030s that will be much more powerful.
Capex grew about 12-16% in 2023.
On average, the supermajors grew about 16.3%, the E&Ps were 15.5% and the Canadian Oil & Gas industry grew about 12%.
As one can see, year-to-year fluctuations are pretty volatile, which is why I examine these cycles over a longer term. I transformed the prior chart to five-year moving averages, and voilà, spending is seen to be coming off trough levels when viewed over the long run.
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