The year 2015 is shaping up to be a pivotal year for oil and gas, in general, and the offshore sector in particular. Looking ahead, here are 15 topics to watch in 2015 that are likely to impact the offshore industry.
Oil prices. If you’re an energy industry professional, you don’t need a reminder to pay attention to crude oil prices. The drop in the price of Brent blend, from over $100/bbl in September to under $60/bbl in December, has sent financial and geopolitical shock waves through the world economy. How governments, companies and consumers respond to price fluctuations will have repercussions for the industry, and the other 14 topics on this list.
North Sea activity. Wood Mackenzie estimates that 85% of planned UK E&P projects are at risk of being dropped, if Brent prices remain below $70/bbl. Also, the Norwegian Oil and Gas Association in November forecast a 10% decline in E&P investment, compared to Norway’s record levels in 2014. Statoil already had delayed several projects in Norwegian waters before the price drop, due to exceedingly high development costs. Are further reductions on the way?
Offshore Africa. In West Africa, Angola is on track to pass Nigeria as the continent’s largest oil producer. The country is expected to reach 2 MMbopd in 2015 as five major projects come fully online. In East Africa, after making big natural gas discoveries off Tanzania and Mozambique, operators are continuing their search, hoping to find oil.
East Coast Canada. Statoil and Husky discovered a 300-MM-to-600-MMbbl reservoir with their first Bay du Nord well in the deepwater Flemish Pass basin. As the largest discovery off Newfoundland and Labrador in 30 years, the well is the third find in the basin, whose development could sustain Canada’s East Coast industry, even as the Hibernia and Terra Nova fields decline.
Mexican Licensing Round One. Following the historic opening of the Mexican oil and gas industry to foreign operators in December 2013, and the “Round Zero” lease sale for Mexican companies, the government plans to hold “Round One” in June 2015 for all bidders. The lease sale will offer 169 blocks, including shallow-water offshore leases. Deepwater leases in the trans-boundary Gulf of Mexico will be offered in subsequent rounds.
Uncertainty in Brazil. Offshore powerhouse Petrobras was rocked by corruption charges that led to the indictment of 39 people. Petrobras shares plummeted 24% as a result, and E&P budgets subsequently were cut. Brazilian President Dilma Rousseff acknowledged that austerity measures for the country were on the way, which does not bode well for the country’s offshore sector.
South China Sea disputes. The South China Sea has sizeable oil and gas reserves, and is also a key shipping lane for crude and LNG. China, Taiwan and Vietnam have conflicting territorial claims in the area, and the Chinese Navy has increased its presence. A confrontation in the area could disrupt energy exploration.
Paleogene Gulf of Mexico. Chevron, BP, Exxon Mobil, Shell, Statoil and others have targeted the Paleogene, or Lower Tertiary, formation in the deepwater Gulf of Mexico. The high-pressure reservoirs will be prolific producers, if technical challenges can be overcome.
Service industry consolidation. Unless you’ve been on an extended vacation, in a remote area the last two months, you know that Halliburton and Baker Hughes, two of the largest offshore service suppliers, have agreed to merge in 2015. Further service industry consolidation and reshuffling can be expected.
Offshore rig fleets. With oil prices at a five-year low, and more than 200 new rigs on order, expect drilling contractors to retire 140 older, offshore drilling units. Contractors will need to make other tough decisions, as their day rates and stock values continue to decline.
Gulf of Mexico lease sales. On March 18, 2015, the U.S. federal government’s Bureau of Offshore Energy Management (BOEM) will conduct Central Gulf of Mexico lease sale 235, covering 7,611 blocks and 40.5 million acres. The date has not been set for sale 246 in the Western Planning Area, tentatively scheduled for 2015, and covering 21.4 million acres.
North American Arctic drilling. Chevron announced that it has canceled plans to drill in the Canadian Beaufort Sea, citing low oil prices. However, Shell is still considering going forward with its plan to deploy two rigs in Alaska’s Chukchi Sea during the 2015 drilling season, pending BOEM approval.
Russian Arctic. Sanctions over the Ukrainian crisis forced Exxon Mobil to withdraw from five contracts with Rosneft to develop discoveries in Russia’s Arctic waters. Given the huge potential resources, will the Russians develop alternative plans to forge ahead in 2015?
Offshore wind energy. Currently, more than 3,000 MW of electricity are being generated at offshore wind installations, mostly in the European Union. On Jan. 29, 2015, the U.S. BOEM will auction leases for 742,000 acres offshore Massachusetts. Start-up of the 420-MW Cape Wind Project, approved in 2010, is still being delayed by litigation.
Platform decommissioning. In compliance with the U.S. Bureau of Safety and Environmental Enforcement’s Idle Iron policy, operators have removed more than 1,100 old structures from Gulf of Mexico waters since 2010. The pace of removal has slowed in the past two years, as resources have been directed to productive assets. North Sea operators, with bigger platforms and harsher environmental conditions, have put off major decommissioning projects.
So, in summation, there are plenty of factors, covering many offshore areas, to keep an eye on during 2015. How oil prices behave will determine, in large part, how these scenarios play out.
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- Oil and gas in the capitals (August 2023)
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- Decommissioning contract activity remains steady, concentrated in Europe (August 2023)