04 May 2018, Sweetcrude, Lagos – The current rise in oil prices will lead to collective investments worth $100 million in the oil and gas sector this year, according to the latest Oilfield Service Report by Rystad Energy.
According to the report, globally, 100 new offshore projects will be sanctioned in that direction, an average of about $1 billion per project.
In contrast, the average projected CapEx for offshore projects approved in 2013 was $1.8 billion.
Sixty projects were sanctioned in 2017, and below 40 in 2016.
Of the 100 projects for 2018, the report said about 30 projects will come from Asia, including Pegaga in Malaysia and D6 in India, and another 30 in Europe, including Neptune Deep in Romania and the already sanctioned Penguins redevelopment in the UK.
Africa will see nearly 20 projects, including Zinia 2: similar number is forecast in the Americas, where major schemes like Vito and Mero 2 are maturing.
“The offshore suppliers have created their own comeback,” says Audun Martinsen, VP of Oilfield Service Research at Rystad Energy. “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.”
According to the report, the prices charged by offshore suppliers have fallen more than for onshore, and it depicts an average reduction of close to 30% in 2018 compared to 2014.
The main driver for this is the large drop in day rates by offshore drilling contractors, which is down 50-70%. EPCI costs for surface platforms and subsea infrastructure are down by 20-30%.
“Not only are the suppliers charging less for their services, they have also improved the efficiencies of their operations, thus shortening lead times from project sanctioning to first oil. As an example, 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.
“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 materializing,” Martinsen said.
The average price for deepwater projects is currently about $45 per barrel, and for shallow water, it is about $30 per barrel.
“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,” Martinsen said.