Deepwater Cost Cutting: It is Hard To Make Money in Deep Water Even With Billions of Barrels To Produce

Abstract

At a time of massive delays in offshore exploration and production, here are four examples of what companies are doing to get to breakeven. After oil prices plunged in 2014, the Libra discovery, which could be the largest in Brazil’s prolific pre-salt offshore play, looked like an iffy proposition. “We worried at that time: Do we have a future for a deepwater project?” said He Baosheng, deputy general manager for subsea wells and facilities for the Libra project, during a panel discussion at the 2017 Offshore Technology Conference (OTC). Petrobras’ chief executive officer (CEO) back then, Oswaldo Pedrosa, said the break-even price was greater than USD 55/bbl, but added that he expected oil prices would rise, making Libra profitable by 2019, when commercial production was expected to begin. Since then the thinking has flipped. With the price of oil stuck around USD 50/bbl, now the goal for Petrobras and its four partners on Libra is to lower the break-even price to USD 35/bbl, said Fernando Borges, executive manager for the Libra project, adding “it is very important to have a low breakeven.” “The goal is the ability to live with prices that are there now, and be happier if the price rises,” said He, who works for China National Offshore Oil Corp. (CNOOC). They made those comments at a panel session where Petrobras and its partners rapidly ran through the many things they are working on to reach that break-even target. So far they are about three-quarters of the way to that goal, if their projected savings are realized when built. At the top of Borges’ short list for reducing the breakeven are reducing capital expenditures and increasing production. Two Ways To Stretch the Lives of Risers and Mooring Lines Stephen Rassenfoss, JPT Emerging Technology Senior Editor The future of many offshore developments hangs on extending the lives of mooring lines and risers. With oil at USD 50/bbl, only the biggest deepwater discoveries can justify the cost of a new production platform, and even those projects demand an intense focus on shaving every possible cost to allow profitable development. The few projects going forward now are generally sending the oil and gas to a platform built for an older field. The Big Payoff for Drilling the Perfect Well Stephen Rassenfoss, JPT Emerging Technology Senior Editor Statoil has reported that it is possible, with the right organization and incentives, to drill the “perfect” well. And when that happened, it was time to redefine perfect. In this case, perfect was defined as the most ambitious target time for drilling eight wells in Statoil’s Johan Sverdrup field. While that discovery was one of the largest ever in the Norwegian North Sea, with oil prices around USD 50/bbl the Norwegian national oil company still needed to significantly reduce the cost of drilling to profitably develop the field. Want To Make Deepwater More Profitable? Shell Says Listen to the Facility Staff Trent Jacobs, JPT Digital Editor Over the course of this downturn, Shell devised a new playbook that has made one of its oldest deepwater facilities a profit leader. Spanning a period from 2014–2016, when crude prices would drop from highs around USD 100/bbl to below USD 30/bbl, the Shell-operated Ursa tension-leg platform managed a 27% increase in oil production while operating costs fell by 40%. The financial feat answered a “cost emergency” brought on by the downturn while also boosting Shell’s view of the asset as a good performer to best-in-class. The company has since adopted the strategy as its operational model for several other floating platforms. Though Shell is known in the deepwater arena for being a first mover of emerging technologies, there are none to speak of with respect to this project. Instead, the general strategy was to circumvent the factors that lead to people resisting change, even when change is most needed.