A new year always brings with it fresh ideas, goals and plans to make the year ahead better than the last. With 2016 a year of cost cutting and 2017 a year of living within means, the oil and gas industry is facing 2018 with a renewed sense of purpose. While predicting when the industry will return to a more sustainable level, there are indications that the hard decisions made these past few years are starting to deliver returns.
John England, vice chairman, U.S. Energy & Resources leader for Deloitte LLP, noted in his 2018 outlook on oil and gas, “the question coming into 2017 was whether the [cost] reductions are sustainable,” adding that the evidence going into 2018 indicates success as “breakeven costs across the major U.S. shale plays still are 30% to 50% below the levels of early 2015.”
As for the offshore segment, the “megaproject” days of old are on hold. Shell, in its final investment decision announcement for its deepwater Kaikias project in the Gulf of Mexico (GoM), said the field will be competitive at oil prices below $40/bbl.
BP and Statoil returned to their respective drawing boards to slash costs on their major offshore projects. At its Mad Dog Field in the GoM, BP trimmed Phase 2 development project cost to $9 billion from a high of $20 billion with a breakeven of about $40/bbl, per the company. Statoil at its Johan Sverdrup development project cut costs so significantly that field breakeven cost dropped from $100/bbl to $27/bbl, according to a company release.
Applying lessons learned from previous projects, simplifying designs, using existing infrastructure and working with suppliers were cited by the operators as keys to success when it came to making these major offshore projects profitable.
These are keys that suppliers like TechnipFMC also have adopted to ensure continued profitability. With its Subsea 2.0 approach, the company reduced the weight and size of the subsea system while simplifying the configuration for flowlines and installation. For example, the Subsea 2.0 tree is about 40% smaller, 50% lighter and has 60% fewer parts, according to Paulo Couto, senior vice president of integrated sub-systems for the company.
“Our strategy is to make things cheaper, faster, accelerate production, resolve integrity issues and make it more serviceable,” Couto said during the company’s analyst day in late November 2017. “The goal is to lower the breakeven of the economics, enabling many more subsea fields, making more subsea fields viable,” he said.
By being simpler, smaller and smarter—less mega—the offshore oil and gas industry appears ready to face a changed future.
Jennifer Presley’s As I See It column originally appeared in the February 2018 issue of E&P.
Ukraine War’s Lesson: Energy Security Begins at Home
2023-02-24 - A year after Russia’s invasion of Ukraine, the importance of energy security remains a key lesson, expert says.
The Russia-Ukraine War and Energy Sector Certain Uncertainties
2023-03-13 - Putin’s invasion of Ukraine has reminded the world that renewables, while gaining momentum, still have a way to go and fossil fuels will remain in demand for decades to come.
Europe Needs a Balanced Gas Portfolio, ENGIE’s Holleaux Says
2023-03-16 - Europe shouldn’t replace an energy dependency on Russia gas with a dependency on U.S. gas, but instead needs to diversify its supply sources, ENGIE Executive Vice President Didier Holleaux said at CERAWeek.
Shell LNG Outlook Highlights Risks to US Gas Market
2023-02-28 - Shell Plc said the rising role for U.S. supply in the global LNG market will increase exposure to U.S. gas market risks, the European energy major announced in its LNG Outlook 2023.
European Demand to Boost LNG Competition Over Next Two Years: Shell
2023-02-16 - European LNG imports rose 60% from 2021, with 121 million tonnes last year, according to supermajor Shell.