With US$380 billion in potential investment going into an increasingly narrow funnel, we are beginning to see evidence that the playing field is levelling for two of the most important upstream asset classes — US tight oil and deepwater.
All eyes have been on US tight oil breakevens and the Permian boom during the past few years, leaving deepwater investment in the dust. But as it has become leaner, the deepwater industry has been quietly recovering and improving its own economics.
After nearly three years of struggling to attract new investment, we expect to see a notable ramp-up in deepwater project sanctions this year to eight — a number which equals 2016 and 2015 combined. Portfolio high-grading has been a major contributor to deepwater’s transformation, including re-worked project designs, fewer and cheaper wells, and smaller facilities.
By focusing on smarter developments, deepwater project breakevens are over 20% lower than mid-2014, with 5 billion barrels of oil equivalent (boe) breaking even at US$50/boe and 15 billion at US$60/boe (NPV15). This compares to 15 billion boe and 26 billion boe, respectively, for US tight oil under the same metrics. A further 20% deepwater project cost cut would bring deepwater economics in-line with tight oil, with approximately 15 billion boe in the money at US$50/boe and 18 billion boe at US$60/boe (NPV15).