Can new conventional oil projects compete with tight oil?
According to our recent Macro Oils long term outlook report, we think competition will come from projects located offshore and in deepwater, where project costs have already decreased by over 20% since the mid-2014 peak.
The vast majority of savings in the offshore sectors have been cyclical — via cheaper rigs and services — rather than due to structural changes, which are more important but much harder to implement.
So far, the structural changes we've seen have primarily been achieved through pre-FID project optimisation, designing projects that have fewer wells, smaller facilities and capacities, and more tie-backs. So while less overall resource is produced initially, capex and project breakevens are now lower. However, we believe deepwater costs will have to fall even further — possibly as much as another 20% — to be truly competitive with tight oil.
Why are deepwater costs taking so long to reset?
Implementing new ideas in deepwater takes far longer than onshore.
In the more active offshore sectors, evidence of structural cost improvements as wells are drilled better and faster. Target complexity is an issue – as companies move away from drilling in frontier areas and focus more on near-field and lower risk opportunities within known basins, efficiencies will rise. Companies remain divided rather than adopting universal standards. Some argue that each field is different and requires a bespoke design, but examples of subsea standardisation adopted in shallow water by Norwegian players resulting in cost reductions of more than 20%.