22 C
Georgetown
Monday, January 18, 2021

Deepwater CAPEX to hit US$60B by 2022: Guyana among countries pushing rise

Must Read

Norway set to ramp up oil production by 19%

(S&P Global Platts) Norway expects its oil production to rise by 19% through to 2024 on the back of...

Oil price projections remain uncertain, Guyana already warned not to spend what it doesn’t have

Extreme price volatility has been a key feature of the oil industry and can have a major impact on...

Let local content policy be responsive to conditions on the ground, expert urges

Guyana has just entered its second year as an oil producing country and the question of how to maximize...
OilNOW
OilNow is an online-based Information and Resource Centre which serves to complement the work of all stakeholders in the oil and gas sector in Guyana.

South American emerging oil and gas powerhouse, Guyana, is listed among a handful of countries pushing a rise in annual deepwater capital expenditure.

In a newly published report, Wood Mackenzie notes that the deepwater industry appears in good health, following a sustained cost reduction through the downturn. However this hard work is in danger of being undone, as impending cyclical cost inflation could raise break-even costs once again.

The cost of developing new deepwater barrels has fallen over 50% since 2013, according to Wood Mackenzie data and analysis. The most important steps deepwater operators have taken to achieve lower costs, and therefore better returns, include; downsizing projects, a greater focus on subsea tiebacks and brownfield developments over greenfield, reduced project lead times and reduced well counts. The industry analyst also listed more phasing of larger developments, faster well completions, better project execution and lower rig/service sector costs as measures taken by operators to lower cost.

“The most competitive region is the Americas, and in particular Brazil, Guyana, and the Gulf of Mexico, where over 50 billion boe of pre- and post-sanction deepwater developments are now profitable under an oil price of US$60/bbl (based on break-even costs),” WoodMac stated.

“One of the key drivers in cost reduction in deepwater projects is lower rig costs, which is a cyclical factor,” said research director Angus Rodger.

“But more importantly, there have also been big structural changes, such as the faster drilling of wells. For example, in the US Gulf of Mexico it now takes half the time to drill a deepwater well compared to 2014,” added Rodger.

Better project execution has also reduced overspend and improved returns. The average deepwater project sanctioned between 2014 and 2016 has started-up around 5% under budget, compared to projects from 2006 to 2013, when cost overruns between 10 and 15% were the norm.

Encouraged by this progress and the growing importance of deepwater projects for future growth, the industry is increasing investment in the sector. Total annual deepwater capital expenditure (CAPEX) is expected to rise from around US$50 billion currently to nearly US$60 billion by 2022. This rise will be driven by big projects in Guyana, Brazil and Mozambique.

But the increase in spend and activities will accelerate a return to cyclical cost inflation in the offshore sector. With total deepwater rig capacity expected to fall over the next few years – as older, less efficient units are scrapped – rig day rates could double by the early 2020s.

“The return of cyclical inflation could see this epic period of deepwater cost reduction come to a close. The question now is how much of the ‘structural’ cost savings we have seen through the downturn will prove sustainable through the investment cycle, and which are just short-term company adaptions,” explained Rodger.

“We believe that many cost savings are not as ‘sticky’ as industry suggests, and are sceptical that many will stand the test of time during a sustained cyclical uptick,” concluded Rodger.

Latest News

Norway set to ramp up oil production by 19%

(S&P Global Platts) Norway expects its oil production to rise by 19% through to 2024 on the back of...

Oil price projections remain uncertain, Guyana already warned not to spend what it doesn’t have

Extreme price volatility has been a key feature of the oil industry and can have a major impact on the ability of governments to...

Let local content policy be responsive to conditions on the ground, expert urges

Guyana has just entered its second year as an oil producing country and the question of how to maximize benefits for the local population...

Halliburton delivers industry’s first successful grid-powered fracturing operation

Halliburton Company said on Thursday it has successfully deployed the industry’s first electric grid-powered fracturing operation. The job, being performed on several pads for...

Exxon has made 18 commercial discoveries out of 22 exploration wells drilled in Guyana

The success rate for finding commercial quantities of hydrocarbons offshore Guyana remains one of the highest in the oil and gas industry. Supported by...

More Articles Like This