OTC: Offshore operators trying to make projects feasible at $50/bbl oil
Operators of offshore oil and gas projects have slashed costs during the oil-price slump, but they also are working to avoid the boom-bust cycles of the past, panelists told an Apr. 30 session at the Offshore Technology Conference in Houston.
Many offshore projects that are now on hold were conceptualized when oil prices were $80-100/bbl, but industry currently considers $50/bbl to be more likely new normal.
Susan Farrell, vice-president of energy-wide perspectives at IHS Markit, noted oil prices rose recently above $50/bbl because of geopolitical risks, including possible US sanctions against Iran, a likely hardening in US foreign policy because of US President Donald Trump’s changing cabinet, and also declining Venezuela oil production.
IHS Markit compiled a model for 54 offshore projects from third-quarter 2014 to third-quarter 2017. Researchers found breakeven costs reduced 45-50% to below $40/bbl oil.
“Half of the cost savings are from service sector price reductions,” Farrell said. “First-quarter 2018 cost levels appear to have flattened out.”
The offshore industry is on a mission to turn high-cost, long-cycle oil production into lower-cost, shorter-cycle production to compete with Lower 48 unconventional onshore projects for financing, she said.
Leigh-Ann Russell with BP PLC emphasized that safety is the top concern along with cost-effective, competitive projects. She said industry seeks to avoid the bust-boom cycles of the past.
“We need to lower costs in a sustainable way,” Russell said, adding industry plans to achieve this through standardization, modernization, transformation, and collaboration. She formerly was with BP’s global wells division but now is BP’s head of upstream procurement and supply chain.
Angela Durkin, Maersk Drilling chief operating officer, said, “The effect of the $50/bbl oil market is still very real to us.” She said oil companies along with drilling contractors are changing their behavior, realizing they need to do something different to make offshore projects more competitive with Lower 48 unconventional projects.
Both Durkin and Hege Kverneland, NOV corporate vice-president and chief technology officer, said contractors are working with oil companies on emerging technology including automated drilling systems and predictive maintenance.
Contact Paula Dittrick at [email protected].
Paula Dittrick | Senior Staff Writer
Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.
Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.
