100 Offshore Projects for 2018 Sanction: Rystad
Firm oil prices will likely mean 100 new offshore projects cleared for development in 2018, according to research consultancy Rystad Energy, compared with only 60 projects in 2017 and fewer than 40 in 2016.
These projects add up to $100bn of capital investment, said Rystad's latest Oilfield Service Report. Average investment per offshore project though is about $1bn, against $1.8bn for those approved in 2013. Several of the 100 this year are offshore gas projects.
“Offshore suppliers have created their own comeback,” said Audun Martinsen, Rystad's vice president of oilfield service research: "Their constant search for cost reductions and streamlining of operations has enabled them to cut offshore project costs by almost 50% compared to the heights of the last cycle.”
Rystad shows an average reduction of close to 30% in 2018 compared to 2014, the main driver for which is the large 50-70% drop in day rates by offshore drilling contractors. Engineering procurement construction and installation (EPCI) costs for surface platforms and subsea infrastructure are down also by 20-30%.
Also the time required to drill and complete a well has fallen by 30% in the North Sea, the Gulf of Mexico and Brazil over the past four years, Martinsen added.
Rystad sees about 30 of the project approvals coming through this year in Asia including Pegaga in Malaysia and the latest D6 phase in India (both gas), plus 30 in Europe including Neptun Deep gasfield (Romania) and the UK Penguins oil/gas re-development. Of the four named, all but Neptun have taken Final Investment Decision (FID). Rystad in January forecast an uptick in 2018 UK upstream FIDs.
Africa should see green lights for nearly 20 projects, with a similar number forecast in the Americas.
“E&P companies have more free cash flow at hand in 2018 than they did during the recent peak years of 2008 and 2011. In fact, 60% of the companies looking to finance their project development costs can do so through their cash flow. Supported by strong oil prices, we see a very small risk of these projects not materialising,” added Martinsen.
The average breakeven price for deepwater developments currently stands at about $45/b, and for shallow water it is close to $30/b, said Rystad, adding also that payback times have fallen by three years for deepwater projects and by 1.5 years for shallow water schemes since 2014. “Offshore projects can now compete with some of the best acreages in the Permian basin in terms of breakeven prices. With rising inflation in the US shale, offshore appears geared to out-compete shale this year and next,” concluded Martinsen.