Why FIDs matter

In this video series, Angus busts myths around project sanctions and the trends we're seeing today. Here are three of the common misconceptions he tackles: 

1. You can't draw a direct correlation between the number of FIDs and total upstream spend. While there is a far higher number of FIDs in 2018 compared to 2014 (before the oil price dropped), total spend in 2018 is lower – US$400 billion in 2018 compared to US$750 billion in 2014. 
2. It would be logical to assume that greenfield projects are bigger than brownfield – but in 2018 some of the biggest projects that were sanctioned are brownfields, including some huge brownfields in the Middle East. 
3. Companies are not specifically targeting more oil or gas projects. In terms of reserves sanctioned in 2018, it was split nearly 50/50 between oil and gas fields. In 2017, there was more oil sanctioned, and in 2016 it was more weighted towards gas. So, no clear trend or pattern.

FID

Final investment decision. The final decision to invest in a project, typically made by the board and executive committee. At this point, major risks have been mitigated and concerns address. The project then progresses to the execution phase - exploration and production.

Project sanction

When a project is given the go ahead to move into the execution phase, sometimes by the state, sometimes by the private entities funding the project. Often used interchangably with FID. 

Sanctioned reserves

The volume of reserves that have been approved for production. Typically measured in barrels of oil equivalent (boe).

Brownfield

An oil or gas field with infrastructure in place. In other words, it's already been developed.

Greenfield

A new undeveloped frontier with no existing infrastructure, which equates to higher levels of difficulty and risk.

boe

Barrels of oil equivalent, a measure that allows like-for-like comparison of oil and gas reserves and production

CAPEX

Capital expenditure. The funds used by a company to buy and upgrade physical assets – it shows on the balance sheet as a investment rather than an expense.