70% of pre-FID oil projects commercial at US$60/bbl

70% of production from pre-FID developments achieve commerciality at US$60/bbl, delivering 9 million b/d of new production by 2025. Most of this production comes from new drilling in US tight oil plays. If prices remain at $50/bbl, then many major conventional projects are at risk of deferral or cancellation. So which projects will breakeven and which will be profitable?



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Emerging supply gap to 2025: what role will pre-FID projects play in filling the gap?

Last month, we looked at global upstream capital spend reductions of 22% or US$740 billion from 2015 out to 2020. The impact of reduced capital spend has had a substantial effect on the oil supply outlook, as future projects are deferred, cancelled or significantly reworked as companies seek to preserve capital. Based on our latest Macro Oils market analysis, over 20 million b/d needs to be developed by 2025 to offset production declines from existing fields and meet future demand growth. Pre-FID projects and future drilling in the US Lower 48 form a critical part of filling this gap, accounting for around 13 million b/d by 2025.

Global breakeven costs have fallen by US$19/bbl to the current

weighted average of US$51/bbl since the peak in 2014 and by
US$8/bbl over the past 12 months.

Patrick Gibson
Research Director, Global Oil Supply 

Of the 13 million b/d available, 9 million b/d is commercial at US$60/bbl Brent. That's more volume than we've seen since 2009 and 1.5 million b/d more than a year ago. New US tight oil drilling picks up the slack, accounting for 60% of the volumes which are commercial at US$60/bbl. Productivity improvements and cost deflation have made tight oil production more economically viable in the key growth plays. Key plays such as Eagle Ford and Wolfcamp dominate the lower end of the cost curve, the latter averaging under US$40/bbl.

Only 20% of volumes commercial at US$60/bbl comes from deep and ultra-deepwater

In contrast, the majority of conventional pre-FID projects are not commercial at US$60/bbl. Deepwater and ultra-deepwater projects are still required to meet demand growth, but higher prices or significant additional cost reductions are needed for many to be commercial.

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Cost curve for offshore drilling remains high

The deepwater outlook for Angola and Nigeria has been hit hardest through cancellations and deferrals whilst US Gulf of Mexico projects remain high on the cost curve and weak project economics could lead to further downgrades or cancellations. Ultra-deepwater Brazil holds a strong position in the middle of the cost curve, with a weighted average breakeven of US$50/bbl due to world-class projects of scale, such as Libra. But the majority of deepwater areas remain significantly higher cost, and are struggling to compete with most onshore projects.

What does this mean for companies?

The big winners in this dynamic are:

  1. Incumbent operators in the key tight oil growth plays such as the Mid-Con and Permian: US Independents EOG, Pioneer, Continental and Apache
  2. Majors, such as ExxonMobil and Chevron

Prices are an important factor in providing an incentive to bring enough of these developments onstream to match demand. However, corporate strategic issues beyond breakeven metrics, such as funding and portfolio factors, also play an important role in deciding the viability and timing of new developments.

Click below to find out more: 

The latest report from Wood Mackenzie on U.S. and other
non-OPEC oil exploration and production into 2025 is worthy
of a very deep dive, because it gives terrific information, not
just on where U.S. oil will be coming from in the next 10 years,
but where the best likely places to invest will be.

Real Money
Looking for Oil's Break-Even Point

How have historical project costs influenced future project development and breakevens?

The pre-FID project mix along with the pattern of future drilling in the US Lower 48 is crucial in understanding the future supply curve. Based on the trend for pre-FID cost curves since 2009, we've seen the cost curve evolving to become lower, longer and flatter.

Learn more about pre-FID cost curves and project deferrals on our Technical Services page:

Which project types have the lowest breakevens? Which projects and key plays are on track to break even? Read the in-depth analysis, Pre-FID oil projects: global breakeven analysis and cost curves.

Find out more

This insight has been developed using a suite of proprietary tools, including our Oil Supply Tool and Upstream Data Tool, setting the industry standard for upstream oil and gas data.

ReportRead our media release: Oil industry drives down global cost curve – US tight oil is the biggest winner

ReportGlobal upstream oil supply summary and Global upstream project tracker

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