Although the shale sector continues to thrive, the pace of deepwater E&P is now gradually picking up. Offshore is making a comeback after the harsh cutbacks that followed the oil price drop that began 5 years ago. The downturn saw declines in exploration spending, final investment decisions, and production. But it is now rebounding, as capital expenditure increases and a number of new finds in promising basins bolster optimism.
A survey of industry executives released last month shows renewed confidence in exploration. Attractive plays in “deepwater sweet spots” such as Brazil, Guyana, Gulf of Mexico, and east Mediterranean are attracting the most attention from operators, according to the Wood Mackenzie survey of 258 executives involved in E&P.
Noteworthy is the increasing amount of money being spent on digitalization in global exploration budgets. About half of operators’ budgets are going for drilling and a fourth for geological surveys, but digitalization now accounts for 8% of the total budget and will likely rise as new seismic processing techniques, artificial intelligence, and machine learning become basic tools for exploration. “Digitalization offers exploration the possibility of better resolution of the subsurface, better seismic modeling, and growing use of automated interpretation,” said Andrew Latham, Wood Mackenzie vice president of exploration. “The survey results back up our expectation that the exploration industry, led by the majors, will spend billions each year on digitalization.”
Some 22% of the executives surveyed said exploration projects can break even with Brent in a $55–60/bbl price band while 18% would be happy with a $45–50/bbl price range. Before the oil price crash, companies saw a break-even Brent price of $80/bbl.
A challenge for operators, especially since the oil price downturn, is keeping costs down. At a panel discussion at this year’s Offshore Technology Conference, representatives of operators noted that companies have made great strides in this area, largely driven by standardization and simplifying projects. US Gulf of Mexico break-even costs are now as low as in the $30/bbl range, compared with a $50/bbl range a few years ago, according to one of the panelists, Chris Golden, a senior vice president for Equinor.
A number of new discoveries show renewed interest in offshore, particularly Latin America. Shell plans to drill its first two deepwater wells offshore Mexico this December in the Perdido Basin, and will likely drill more next year, according to Martin Stauble, Shell’s vice president of exploration for North America and Brazil. Shell and ExxonMobil recently won acreage offshore Colombia, which is trying to revitalize its E&P, and a number of major operators have been active in Brazil licensing rounds. And Argentina’s held its first open bid round for offshore acreage in more than 20 years in April.
ExxonMobil has also made a number of major discoveries offshore Guyana. Its Liza Phase 2 project received government and regulatory approvals in May and remains on track for first oil by early 2020 and will produce up to 220,000 B/D by mid-2022.
