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Growth Predicted For Deepwater Projects

Deepwater oilfield projects may soon start to compete more closely with tight oil, driving renewed demand for associated breakbulk services, according to research from consultancy Wood Mackenzie.

The firm suggests that “there are stirrings” in the challenging deepwater sector, and predicts that in the “not too distant future” green field deepwater projects will give tight oil a run for its money in competing for capital.

“Reports of the death of greenfield deepwater projects may have been exaggerated. Tight oil has garnered all the plaudits in the last few months, rightly given the resurgent growth underway,” a spokesperson for Wood Mackenzie said, adding that this year “may be the brightest” for upstream investment since 2014.

The growth in tight oil production at the expense of conventional deepwater projects has negatively breakbulk providers in recent years as cuts in budgets and cancellations have led to widespread consolidation.

The firm estimates there are 15 billion barrels of tight oil resource in undrilled wells with break evens of US$50 per barrel or lower, equivalent to 10 years of current tight oil production. In comparison it estimates 5 billion barrels of green field projects achieve a 15 percent hurdle rate at US$50 per barrel.

“Spend on conventional projects will be flat in 2017 at just under US$340 billion, still scraping along at the lows of the cycle. A new wave of FIDs is needed to sustain investment into 2018 and beyond, as spend winds down on projects already under development,” the firm notes.

Efficiency gains drive “big opportunities”

Despite the firm believes deepwater investment is heading in the right direction as pre-FID project breakevens have fallen from US$79 per barrel on average in mid-2014 to US$62 per barrel today. The two main drivers have been costs and portfolio high grading.

The firm notes that cheaper rig rates are cyclical, and that all important structural change is now starting to show through as operators rework project designs, and use more subsea tiebacks and hub facilities.

“The big opportunities lie in four main areas: reduction of facility size and processing capacity; changing the facility concept, say using a semi-sub rather than a spar; reducing well count; and improving well design,” said Angus Rodger, upstream research director at Wood Mackenzie.

Photo: Wood Mackenzie predicts deepwater growth. Credit: Wikimedia

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