The UK, Mexico and shallow-water Norway are now the most competitive locations for new oil and gas projects following cost-cutting by the offshore industry globally, consultancy Wood Mackenzie said Thursday.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
In a new report, Wood Mackenzie forecast that breakeven costs for major new investment projects would fall by another 15% this year to $44/barrel of oil equivalent, and said it expected 30 major projects to be approved this year, in line with last year's 32.
It gave a cautious view on spending levels, predicting that investment per barrel of reserves would rise slightly this year for deepwater projects, to almost $10/boe, but the average price tag of newly approved major projects would fall for a third year in a row, to $2.2 billion, from $2.7 billion last year, which was the lowest in a decade.
It noted that already in the first quarter six of the 30 projects that it forecast would be approved this year had got the go-ahead, in the UK, Norway, Israel, the Netherlands, Malaysia and China.
The report chimes with surveys and comments from industry leaders applauding improvements in the North Sea, which was long viewed as exceptionally expensive. Earlier this year, Goldman Sachs said most European oil majors were on track to organically fund capex and cash dividends at $40/b by 2020.
But Wood Mackenzie noted a sharp drop in the average volume of oil and gas reserves associated with each project approved last year, accompanied by an increase in the number of countries where projects were approved, from eight in 2016 to 19 in 2017.
The average project size last year was 376 million boe, down from 909 million boe in 2016 and 537 million boe in 2015, the consultancy said.
"The primary focus has been to reduce project footprints through fewer wells, smaller facilities, and the greater use of subsea tie-backs and existing infrastructure," Wood Mackenzie said. "Lower costs, lower breakevens, higher prices and improved corporate finances all contributed to an upgrade in industry sentiment."
But "the big question is whether the industry is actually spending enough," Wood Mackenzie research director Angus Rodger said. "We cannot rely on smaller projects forever, and when we look at LNG in particular, we see a lot of big projects on the horizon."
Wood Mackenzie's forecast of a 15% fall in breakeven costs this year assumes a 15% discount rate, used to measure the value of money over time.