Offshore sector 'becoming leaner and more cost-competitive'News // March 31, 2017
According to a Wood Mackenzie report, a leaner and more cost-competitive deepwater industry is emerging from the downturn, with the most attractive projects now competing with US tight oil plays. The US sector of the Gulf of Mexico is leading in this.
Wood Mackenzie estimates that on average global deepwater project costs have fallen just over 20 per cent since 2014. Assuming a 15 per cent internal rate of return hurdle (NPV15), 5 billion barrels of pre-sanction deepwater reserves now breakeven at US$50/boe or lower.
By comparison, there are 15 billion barrels of tight oil resource in undrilled wells with breakevens of US$50/boe or lower at a 15 per cent hurdle rate in Wood Mackenzie's dataset.
"However, the playing field between tight oil and deepwater is about to get a lot more level," said Wood Mackenzie. "There is still considerable scope to drive deepwater breakevens lower through leaner development principles and improved well designs, but in tight oil cost inflation is back with a vengeance."
Wood Mackenzie estimates that a further 20 per cent cut in current deepwater costs would bring 15 billion barrels of pre-FID reserves into contention, on par with tight oil. The deepwater value proposition will strengthen as tight oil cost inflation returns. A 20 per cent rise in tight oil costs would mean that the two resource themes effectively have the same opportunity set measured by volume in the money at US$60/boe.