Energizing Worldwide Oil and Gas Deepwater Developments
- Martijn Dekker (Shell Oil) | Mike McEvilly (Hess Corporation) | Mike Beattie (Anadarko) | Bruce Laws (Maersk Oil Houston) | Deanna Goodwin (Technip) | Sandeep Khurana (Granherne-KBR)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- June 2016
- Document Type
- Journal Paper
- 47 - 49
- 2016. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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The precipitous drop in oil prices is putting higher-cost plays such as deepwater under the microscope. Key questions include: How will the industry energize deepwater developments to close the gap between cost and current commodity prices? What oil price is required to keep deepwater viable over the long term? These topics will undoubtedly be at the top of the mind for oil company executives over the months to come, and were the focus of a panel discussion at the Offshore Technology Conference (OTC) conference titled “Energizing Worldwide Oil and Gas Developments.” Also participating was Kassia Yanosek of McKinsey & Company, which provided break-even cost analyses and historical data on deepwater developments.
By reflecting on the past and looking at the current situation, the panelists explored scenarios on how deepwater breakeven prices can be brought down significantly.
The Past and Present
In the run-up to the oil price drop in late 2014, deepwater had spectacular investment and production growth. However, even then there were signs of increasingly challenging project economics. Global deepwater investment increased from USD 16 billion in 2003 to more than USD 70 billion in 2013 with production more than doubling in that time period to almost 6 million B/D, or 7% of the world’s total oil supply. However, toward the end of this period, there were buildups in costs and cycle times. In the USD 100/bbl price environment of 2012–2013, deepwater breakeven costs for green field projects ranged from USD 70/bbl in the US Gulf of Mexico (GOM) to USD 75/bbl in West Africa, 2-3 times the costs in the previous decade. This was due primarily to three factors: increased geologic complexity (for example, the Paleogene in the GOM, and the pre-salt in Brazil and Angola), increased government take and local content requirements, and project cost escalations beyond supplier margin/ commodity costs (such as increased design complexity.)
In today’s “lower-for-longer” price environment, deepwater greenfield project economics are challenged, yielding dramatic cuts in investment. As of early 2016, approximately 35 billion BOE or approximately 6 million BOEPD of deepwater reserves and production, respectively, has been deferred. The good news is that in today’s price environment, project costs have been reduced across the board, primarily driven by supply chain margin compression. In regions with competitive supply chains, such as the GOM, breakeven costs for greenfield developments have decreased 20% on average to USD 50–60/bbl and ultradeepwater rig day rates have fallen 40% from the first quarter of 2014 to the first quarter of 2016.
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