Investment offshore Norway cut by $50 billion, Wood Mac says
STAVANGER and EDINBURGH -- Wood Mackenzie has cut $50 billion from its forecast for 2016-2020 capital investment in Norway. This is based on over 10 projects being deferred or scrapped to cut costs, according to the company’s latest study on the future of projects on the Norwegian Continental Shelf.
"Companies are seeking lower cost solutions, be that from cheaper market rates, or different development options," said Malcolm Dickson, principal analyst, Upstream Oil and Gas, Wood Mackenzie.
There are 3 Bbbl worth of pre-final investment decision (FID) projects sitting waiting for sanction—and the timing of these is crucial in determining the costs of the kit required for development.
"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," said Dickson.
"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 break-evens in excess of $50/bbl—and simplification, standardization and optimization, not cyclical benefits are the keys to new investment."
Commenting on the effect of the oil price drop on capital investment spend in Norway, Dickson said, "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."
Wood Mackenzie's research shows that in 2016, subsea equipment, drilling and seismic will see the most cost deflation.
Based on the company’s recent survey, independent oil companies are more optimistic of further deflation in 2017—while the supply chain foresees an earlier demand uptick, curtailing deflation.
