Operators of offshore oil and gas projects have slashed costs during the oil-price slump, but they also are working to avoid the boom-bust cycles of the past, panelists told an Apr. 30 session at the Offshore Technology Conference in Houston. Many offshore projects that are now on hold were conceptualized when oil prices were $80-100/bbl, but industry currently considers $50/bbl to be more likely new normal. Susan Farrell, vice-president of energy-wide perspectives at IHS Markit, noted oil prices rose recently above $50/bbl because of geopolitical risks, including possible US sanctions against Iran, a likely hardening in US foreign policy because of US President Donald Trump’s changing cabinet, and also declining Venezuela oil production. IHS Markit compiled a model for 54 offshore projects from third-quarter 2014 to third-quarter 2017. Researchers found breakeven costs reduced 45-50% to below $40/bbl oil.
“Half of the cost savings are from service sector price reductions,” Farrell said. “First-quarter 2018 cost levels appear to have flattened out.” The offshore industry is on a mission to turn high-cost, long-cycle oil production into lower-cost, shorter-cycle production to compete with Lower 48 unconventional onshore projects for financing, she said. Leigh-Ann Russell with BP PLC emphasized that safety is the top concern along with cost-effective, competitive projects. She said industry seeks to avoid the bust-boom cycles of the past.