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Offshore oil and gas drilling and projects are set for robust growth in the coming years thanks to the world’s clear need for continued large volumes of fossil fuels as evidenced by the ongoing energy crisis in Europe and tight markets.
High-impact drilling is returning after the COVID-induced slump, while international majors are close to approving more offshore projects, including so far offshore that production sites would be in international waters, analysts say.
Despite the push for energy transition and oil majors’ stated ambitions to invest more in clean energy solutions and – for some of them such as BP – to curb oil and gas production this decade, Big Oil is looking offshore for massive resources. Those discovered resources would require significant capital expenditure to get them up and running, but once pumping, the deep offshore projects could yield oil for decades at lower breakeven costs because of the sheer scale of the huge developments.
Sure, more drilling offshore meets strong resistance from environmental organizations, which generally want Big Oil to stop pumping immediately, and which warn that potential ocean spills would endanger marine environment.
The trend of global oil demand in the coming decades of the energy transition will be a key factor in the profitability of future offshore oilfields.
But right now, with an unprecedented energy crisis unfolding, E&P companies are not abandoning offshore oil. On the contrary, they are looking to develop projects which would pump oil for years, possibly decades, at lower costs compared to other types of oil developments.
Global Offshore Has Lower Breakeven Costs Than Onshore
According to Rystad Energy analysis, cited by Reuters, the resource-weighted Brent-equivalent breakeven oil price for producing global offshore projects averages $18.10 per barrel of oil equivalent (boe), versus $28.20 per boe breakeven price for global onshore projects already in production. In projects under development, global offshore again beats global onshore in terms of lower breakeven costs. Per the methodology, breakeven is the flat real oil price at which the continued operation of the assets is commercially viable.
Canada’s Deep Offshore Could Host A World First Project
One project that could soon make a final investment decision (FID) is so far offshore Canada’s coast that it falls in international waters and would require Canada paying royalties to the United Nations based on production from the project.
This is the Bay du Nord project offshore Newfoundland and Labrador, led by Norway’s Equinor. In April, the $12-billion project received a positive environmental assessment from the Government of Canada. The project has yet to make an FID, with first oil expected to be produced in the late 2020s. The positive view from Canada takes Bay du Nord “a step closer to being the first offshore oil and gas project in the world to trigger Article 82 of the United Nations Convention on the Law of the Sea (UNCLOS),” reports Energy Regulation Quarterly.
Apart from Equinor, BP has also seen the potential of Bay du Nord. While announcing it was quitting Canada’s oil sands, the UK supermajor also bought Cenovus Energy’s 35% stake in the Bay du Nord project as it shifts its focus to future potential offshore growth in Canada.
Commenting on BP’s deal, Starlee Sykes, bp senior vice president, Gulf of Mexico & 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 sizable acreage and a discovered resource to our existing portfolio offshore Newfoundland and Labrador.”
Offshore Contracts Set To Surge Through 2026
Overall, offshore oil and gas engineering, procurement and construction (EPC) spending globally is expected to total $276 billion between 2022 and 2026, which would be a 71% increase compared to the preceding five-year period, according to Westwood Global Energy Group. Asia, the Middle East, and Latin America will dominate expenditure, the energy analytics group said.
Moreover, 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 discovering new oil and gas resources.
So far this year, E&P firms have discovered over 1.7 billion barrels of oil equivalent (boe) at high-impact wells, nearly quadrupling the 450 million boe discovered for the whole of 2021, Rystad Energy said earlier this month. So far into 2022, the success rate at such wells has stood at 47%, much higher than the meager 28% success rate last year, Rystad Energy noted.
The much higher success rate at 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 upended following the Russian invasion of Ukraine and the subsequent sanctions and embargoes on Russian oil.
