Technology Focus: Offshore Facilities (September 2020)

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Welcome to the Offshore Facilities feature of this month’s JPT. It was my pleasure to review 161 conference papers submitted in this field during the past year. As noted in the May JPT, our offshore industry began January 2020 with its third-best year on record. The breakeven point (BEP) for deepwater projects prefinal-investment decision had fallen to approximately $50/bbl, and greenfield offshore development BEP was expected to reach below $40/bbl. In mid-January 2020, I attended and enjoyed the first International Petroleum Technology Conference in Saudi Arabia and witnessed an optimism across our industry. But all excitement changed unexpectedly in April 2020, when COVID-19 became a global pandemic, oil was oversupplied, and markets crashed. This low-oil-price situation is not the first in the history of our industry, and we again are going to see the challenges of reduction in demand; equipment; services, including financial support; asset and manpower excess reduction; and supply-change distraction. Yes, it is a cycle, and survival is the only mode to be able to move forward. However, what is different nowadays is that we should begin to propose a radical approach in how to improve our offshore development business cycle to be more agile and resilient. The COVID-19 pandemic accelerates transformative moments, particularly the search for the best strategy and innovation to secure offshore megaprojects not underpinned by higher oil prices. We have seen a drop of almost 20% in capital expenditures (CAPEX) this year, and Rystad predicted that total industry spending on exploration and production (E&P) will be cut by $100 billion by the end of the year and another $150 billion in 2021. As with previous downturns, three classical examples exist with regard to how offshore E&P companies typically react. First, capital spending is reduced. Second, projects are delayed. Third, companies reorganize. If we look back to 2014, the drastic fall of oil prices has successfully pushed more innovation and efficiency. The crisis is a catalyst to innovation. The new normal might become an opportunity to standardize unmanned offshore design. Radical thinking such as demanning and reuse of offshore oil and gas facilities might become a breakthrough to keep CAPEX and operational expenditures (OPEX) low. I have been fortunate to have some discussions with Robert Perrons, a professor from the Queensland University of Technology, about how to succeed at innovation with-in the industry under these conditions. He mentioned that the key for startups is to have the business case clearly articulated. Discussions about startups are far less likely to sound interesting unless you can explain to an operator how you can save them money right away. For offshore greenfield projects, standardization of design, efficiency of subsea technology, increase in digitization and automation, CAPEX/OPEX discipline, and increasing return on investment will trend after COVID-19. Meanwhile, for brownfield projects, digitalization and facilities debottlenecking can reduce OPEX significantly. Innovations related to nonintrusive and robotic methods for inspection also will be demanding after COVID-19. The three papers and recommended additional reading presented here support CAPEX/OPEX discipline, cost optimization, offshore development breakthroughs, and technology transformation. I hope you enjoy reading these papers as much as I did.