Offshore oil and gas poised for robust growth

Offshore oil and gas drilling and projects are expected to experience robust growth in the coming years thanks to the world’s clear need for large and continued volumes of fossil fuels, as evidenced by the current energy crisis in Europe and tight markets.

High-impact drilling is returning after the COVID-induced crisis, while international majors are set to approve more offshore projects, including so far offshore that production sites would be in international waters, according to the analysts.

Despite the push for energy transition and the stated ambitions of the oil majors to invest more in clean energy solutions and – for some of them like BP – to curb oil and gas production this decade, Big Oil is seeking massive resources overseas. These discovered resources would require significant capital expenditure to bring them into use, but once pumped, deep offshore projects could produce oil for decades at lower breakeven costs due to the sheer scale of the huge developments.

Of course, more offshore drilling is meeting stiff resistance from environmental organizations, who typically want Big Oil to stop pumping immediately and who warn that potential ocean spills would endanger the marine environment.

The evolution of global oil demand in the coming decades of energy transition will be a key factor in the profitability of future offshore oil fields.

But right now, with an unprecedented energy crisis unfolding, E&P companies aren’t giving up on offshore oil. Rather, they seek to develop projects that would pump oil for years, even decades, at a lower cost than other types of oil development.

Global offshore has lower balancing costs than onshore

According to Rystad Energy’s analysis, quoted by Reuters, the break-even resource-weighted Brent oil price for global offshore project production averages $18.10 per barrel of oil equivalent (boe), compared to $28.20 per boe for global onshore projects already in production. In projects under development, global offshore again beats global onshore in terms of lower balancing costs. According to the methodology, the break-even point is the fixed real price of oil at which continued exploitation of the assets is commercially viable.

Related: Oil prices under pressure as China extends Covid lockdowns

Canada’s deep offshore could host a world first

A project that could soon be subject to a Final Investment Decision (FID) is so far off the Canadian coast that it falls into international waters and would require Canada to pay royalties to the United Nations based on the production of the project.

It’s the North Bay Project off Newfoundland and Labrador, LEDs by the Equinor of Norway. In April, the $12 billion project received a positive environmental assessment from the Government of Canada. The project has yet to achieve FID, with first oil expected to be produced in the late 2020s. Canada’s positive view takes Bay from the North “one step closer to the world’s first offshore oil and gas project to trigger Article 82 of the United Nations Convention on the Law of the Sea (UNCLOS)”, reports Energy Regulatory Quarterly.

Besides Equinor, BP also saw the potential for North Bay. While announcing he was leaving Canada’s tar sands, Britain’s supermajor also bought Cenovus Energy’s 35% stake in the Bay du Nord project as it focuses on potential future overseas growth in Canada.

Commenting on the BP deal, Starlee Sykes, bp senior vice president, Gulf of Mexico and Canada, saidin June:

“This is an important step in our plans to create a more focused, resilient and competitive business in Canada. Bay du Nord will add significant acreage and discovered resource to our existing offshore Newfoundland and Labrador portfolio.

Offshore contracts expected to increase until 2026

Overall, offshore oil and gas engineering, procurement and construction (EPC) spending around the world is expected to $276 billion total between 2022 and 2026, which would represent a 71% increase over the previous five-year period, according to Westwood Global Energy Group. Asia, the Middle East and Latin America will dominate spending, the energy analysis group said.

In addition, high impact drilling is also back, with a much higher success rate so far this year, compared to 2011.

High-impact exploration has returned to the scene after a dismal 2021, which saw a low success rate – one of the lowest on record – in finding new oil and gas resources.

So far this year, E&P companies have discovered more than 1.7 billion barrels of oil equivalent (boe) in high-impact wells, nearly quadrupling the 450 million boe discovered for all of 2021. , Rystad Energy said earlier this month. So far in 2022, the success rate for these wells has stood at 47%, well above last year’s meager 28% success rate, Rystad Energy noted.

The much higher success rate of high-impact wells drilled this year is a good signal for global supply at a time when oil and gas prices are high and trade has been disrupted following the Russian invasion of Ukraine and subsequent sanctions and embargoes against Russia. oil.

By Tsvetana Paraskova for Oilprice.com

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