Low oil prices and project delays might be casting dark clouds on deepwater operations today, but a research firm’s forecast shows spending will climb after 2016.
Led by developments offshore Latin America and West Africa, the energy research firm Douglas-Westwood projects deepwater capex will jump by 69% to $210 billion between 2015-2019, compared to the previous five-year period.
“Africa, Latin America and North America will continue to dominate deepwater capex, with $173 billion set to be spent over the next five years with Africa forecast to experience the greatest growth,” said Balwinder Rangi of Douglas-Westwood. “The development of East African natural gas basins has not been aided by the plunge in Asian gas prices; however, the development of these gas basins is inevitable
Oil prices have plummeted from more than $100/bbl in June 2014 to less than $50/bbl (WTI) today, a result of bountiful supplies that continue to outpace demand. In turn, oil and gas companies have been cutting expenses through layoffs and delaying projects, including in longer-term deepwater plays, as they await better economics.
In March, Statoil—with partners Eni and Petoro—delayed the Johan Castberg project in the Barents Sea. The project, which will develop the the Skrugard, Drivis and Havis discoveries, has an estimated 400 million barrels (MMbbl) to 650 MMbbl of proven oil. The partnership decided to postpone the decision on whether to continue the project until second-half 2016. An investment decision is anticipated in 2017.
In the same release, Statoil said it would also postpone the Snorre 2040 platform in the Norwegian North Sea. The project would add a new platform in Snorre Field with access to an estimated 1.63 Bbbl of oil reserves.
The company plans to make a preliminary decision on whether to implement the project in fourth-quarter 2016. The final investment decision is set for fourth-quarter 2017. The company is evaluating ways to make the projects cost-effective.
“We have made significant progress in reducing costs for Johan Castberg. However, current challenges in relation to costs and oil prices require us to spend more time to ensure that we extract the full benefit of the implemented measures,” said Ivar Aasheim, Statoil’s senior vice president for field development on the Norwegian Continental Shelf.
Petrobras, a leader in deepwater drilling activity, may face delays with four of its major deepwater FPSO projects. Citing Galp Energia, a partner of Petrobras, Hart Energy’s Deepwater International reported that the building of floaters for the Lula Sul, Lula Norte, Lula Extremo Sul and the Lula Oeste fields could be delayed by at least a year. Most at risk, according to Galp Energia CEO Manuel Ferreiera’s presentation, are the P-66, P-67, P-68 and P-69 floaters. First oil for the fields is expected in 2017 and 2018.
Douglas-Westwood blamed floater delivery delays in Latin America as the primary driver for the near-time “trough in global expenditure.”
This comes along with canceled deepwater rig orders such as Rosneft’s quashed agreement for North Atlantic Drilling’s (NYSE: NADL) West Navigator drillship and Anadarko Petroleum’s (NYSE: APC) termination of its contract with Dolphin Drilling Ltd. for the Belford Dolphin drillship.
However, despite the forecast period’s rocky start, a turnaround is predicted post-2016, assuming market conditions improve.
“The expected recovery of oil prices will spark a revival in LNG-related activities in the region towards the end of the forecast period,” Rangi said.
Deepwater offshore Mozambique and Tanzania is among the most promising. Anadarko and its partners have reportedly discovered more than 75 trillion cubic feet of estimated recoverable gas in Offshore Area 1 of the Rovuma Basin.
The company mentioned progress on some of its deepwater projects during its fiscal-year 2014 results announcement. Highlights included advancing long-term Mozambique LNG sales agreements as well as progress offshore other parts of Africa. Anadarko's non-operated 80,000-barrels-per-day Tweneboa, Enyenra and Ntomme development offshore Ghana remains on schedule with first production expected in 2016.
The forecast said development offshore Africa is not expected to be greater than Latin America. However, that remains to be seen given deepwater powerhouse Petrobras’ present struggles. The company has been pushed and pulled by fallout from a corruption scandal, the sale of $13.7 billion in assets and delivery delays—all while trying to develop massive presalt discoveries.
“In addition to the low oil price environment and building oversupply, the lack of rig demand will impact capex growth over the forecast period. Current, industry consensus indicates that an oil price recovery is expected in the mid-to-long term,” Rangi said. “[While] the economic feasibility of deepwater fields varies, typically long-term oil prices of $80 per barrel would ensure the viability of the majority of developments.”
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