Some US$50 billion has been dropped from the Norwegian oil and gas investment hopper from 2014 up to 2020, according to figures presented at the ONS exhibition and conference in Stavanger today.
The fall, amid a $1 trillion drop in global spending in the same period, is all projects that have been axed entirely, however, said Wood Mackenzie senior analyst Malcolm Dickson.
Speaking at ONS, Dickson said some 10 projects had been deferred or scrapped, while others are being optimized, such as Johan Castberg, helping to reduce planned spending in the 2016-2020 period. Others are currently deemed uneconomic, including Vette and Tommeliten Alpha, says Dickson.
Wood Mackenzie's research suggests there are 3 billion barrels worth of pre-final investment decision (FID) projects sitting waiting for sanction.
The timing of when these come to FID will be crucial in determining the costs of the kit required for development, says Dickson.
"The best time to FID from that point of view is before 2018, after which we expect demand to pick up in line with oil price recovery. This will push costs up in the global supply chain, and there could be a demand crunch at that point," he says.
"Mid-2017 is the bottom, if you believe in oil price recovery, as we do. That means that cost inflation will begin to creep into fields from 2018 onwards. FID in the next year or so would make sense to capture lower costs," explains Dickson. "However, cost optimization can trump everything. Too many of those projects have breakevens in excess of US$50 a barrel – and simplification, standardization and optimization, not cyclical benefits are the keys to new investment."
For those looking to invest, FIDs targeting 2017 would be optimal for lower costs. Commenting on the effect of the oil price drop on capital investment spend in Norway, Dickson says: "We can’t change the oil price, but we can look to bring costs in line with it. The most prevalent type of optimization has been simplification of projects such as moving to lower cost drilling techniques, scaling down vessel spec and moving from large platforms to subsea."
Examples of optimization include the evidence of more efficient drilling in exploration – with wells being drilled 50% faster than 2013, as well as new technology approaches like Åsgard's subsea compression, which adds around 300 MMboe to that project. Statoil is among the companies benefitting from the use of standardized and simplified well designs to cut time and costs.
"While costs have come down, there’s a lot further to go," says Dickson. Wood Mackenzie's research shows that in 2016, subsea equipment, drilling and seismic will see the most cost deflation.
Based on a recent survey of oil companies and contractors by Wood Mackenzie, independent oil companies are more optimistic of further deflation in 2017 – while the supply chain foresees an earlier demand uptick, curtailing deflation.
Subscribe
