Oil and gas projects in deep waters grow competitive

A new report from Wood Mackenzie finds the break-even costs are about on par with the current market.
By Daniel J. Graeber  |  March 30, 2017 at 6:21 AM
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March 30 (UPI) -- On the heels of new developments in the Gulf of Mexico, a report finds the next breakout area for the recovering oil and gas sector may be deep water basins.

A new report emailed from analytical group Wood Mackenzie finds the cost to break even on oil and gas projects in deep waters, the U.S. Gulf of Mexico in particular, has dropped from around $70 per barrel to below $50 per barrel in some cases.

The price for Brent crude oil, the global benchmark, was around $52 per barrel early Thursday. Since 2014, Wood Mackenzie estimates the average cost to develop deep water projects, and not just in North America, have dropped more than 20 percent.

Angus Rodger, a research director for exploration and production at the firm, said it's not a matter of companies like Transocean cutting their rig lease rates to remain competitive.

"Of far greater impact are the steps the industry in the Gulf of Mexico and elsewhere have taken to re-evaluate project designs and improve well performance," he said in a statement.

British energy company BP last week awarded a contract to a subsidiary of oilfield services company Schlumberger for the development of its Mad Dog prospect in the Gulf of Mexico. By working with industry counterpart Subsea 7, the company said it was able to deliver a capital solution that was "substantially lower" than the original estimate.

Outside of North America, the development of the giant Leviathan gas field off the coast of Israel is seeing contracts for the fixed production platform come in with cost-effectiveness in mind, Scottish oilfield services company Wood Group said.

Wood Mackenzie adds that, just as development costs shrink, so does the pool of competition. More than 70 percent of the deepwater projects in consideration are operated by just eight companies.

"In a capital-constrained world, fewer operators inevitably mean less deepwater projects flowing through to sanction," the report read. "Only the most cost-competitive projects and regions will attract new investment."

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