Wood Mackenzie sees the big and national oil companies putting their investment eye on offshore basins like Guyana and the U.S. Gulf of Mexico. File photo by Project1photography/Shutterstock
Jan. 4 (UPI) -- It will be the deep waters like offshore Guyana that look commercial in the current market and make big and national oil companies turn a head, analysis found.
Consultant group Wood Mackenzie expects a competitive field this year in exploration and production, with likely only the majors like BP and Exxon Mobil, along with national oil companies, investing heavily. Global investment in conventional exploration will be around $37 billion, about 7 percent less than last year and 60 percent below the top of the curve from 2014.
Andrew Latham, a vice president for research in global exploration, said the big companies will be the most active. Rather than shale, it's conventional exploration that's appetizing to them.
"Too large to match the retrenchment to U.S. shale of the U.S. independents, they know that conventional exploration will be needed for long-term renewal," he said in an emailed statement.
From Wood Mackenzie's perspective, it's the deep waters of the Atlantic basins like Guyana and the U.S. Gulf of Mexico that are the "sweet spots," where commercialization will be quick and most companies can break even with a price of oil below $50 per barrel.
"The majors sense a bottom-of-the-cycle opportunity to build acreage at low cost," Latham added.
After U.S. President Donald Trump signed the Tax Cuts and Jobs Act before the Christmas holiday, a tax bill that extends permanent tax cuts to corporations, the Texas Alliance of Energy Producers said provisions favored small and independent producers. Those tax cuts extend into operations that by the trade group's estimate make up 20 percent of U.S. crude oil production and 12 percent of U.S. gas production.
Texas accounts for about half of total inland exploration and production activity. Measured in part by rig counts, the Permian shale basin in Texas is the most active in the country. Some analysts, however, are worried about the buildup in drilled, but uncompleted wells. Those types of wells are ones that operators don't yet want to put into production because of market conditions and numbers are still increasing even with crude oil prices flirting with $70 per barrel in early 2018.
The U.S. Gulf of Mexico accounts for about 17 percent of U.S. oil production and 5 percent of the natural gas. Meanwhile, in Guyana last year, Hess Corp. and Exxon announced a final investment decision for the offshore Liza oil prospect. The development cost of $3.2 billion is considered relatively low for a field that could yield 450 million barrels of oil after first oil is on stream by 2020.
Even in conventional basins, Wood Mackenzie said the number of committed explorers is shrinking, and those commitments focus on more or less similar opportunities. Diversity is waning and stiff competition means caution will prevail.
"We expect most companies will maintain a highly cautious approach to exploration for a while yet," he said. "Industry investment and well counts will remain stubbornly low in 2018."