Deepwater Statistical Report

Full-cycle returns in key deepwater basins

Alan Murray, Wood Mackenzie

In recent years, deepwater exploration has had to face a fresh set of challenges that are very different from the hurdles that faced deepwater pioneers in the 1990s. Many of these challenges have been driven by the sharp rise in oil prices in this period, and in this article we look at full-cycle returns in key deepwater basins under a $100/bbl long-term Brent oil price assumption.

The chart shows a comparison of deepwater volumes discovered and the full-cycle economic returns generated by these discoveries. The bubble sizes are based on the relative exploration spend in each basin.

Under this price outlook, deepwater returns average around 20%-sufficient to keep deepwater exploration attractive despite the well-documented increases in drilling costs over the period.

The highest returns have been in basins with very localized discoveries. In Ghana, Jubilee Field is still being appraised, but in the Baram Delta the Kikeh development came onstream quickly and cheaply, and similar FPSO solutions are being applied to recent nearby discoveries in the basin.

Lower returns were associated with capped gas pricing in both the Krishna-Godavari Basin, where supplies are targeted at the Indian market, and in the North Carnarvon Basin, where gas from the Pluto and Xena discoveries is being developed for the Asian LNG market.

Returns were also lower in Angola, where many of the discoveries were smaller fields in the ultra-deep water. Low returns are partly due to high costs associated with the ultra-deepwater setting of most of these discoveries, and partly due to progressive fiscal terms that cap investor upside at high oil prices.

In the two places where the largest volumes have been discovered-Brazil and the Gulf of Mexico-the returns are very similar despite the different settings considered. Despite the greater depth of the Paleogene play in the GOM, returns are very similar to those in the more established Neogene plays. The same comparison holds true for the Santos and Campos Basins in Brazil. This highlights the importance of the fiscal system-which is country specific-in dictating the returns generated.