Where would the world be without the oil and gas industry? After spending $600bn on exploration and production in 2012, the sector is set to spend almost $650bn in 2013, according to Barclays. That should secure a lot of jobs, create a bonanza of subcontracting, bring some of the outstanding projects a little closer to completion, and – who knows? – help in finding a few new wells. Whether it will improve the investment case for E&P companies is another thing.
Returns from the E&P sector in 2012 have been poor. The S&P 500 oil and gas producers index has underperformed the wider US market by 10 percentage points this year; in Europe, a similar comparison shows a 20 per cent shortfall. The sector appears to lack operational momentum: production problems have been widespread and companies have shed peripheral elements of their portfolios.
ConocoPhillips’ sale of its Algerian business to Indonesia’s Pertamina for $1.75bn this month is a case in point. The spending is likely to proceed in spite of oil price fluctuations – though prices are favourable at the moment.