HOUSTON—Despite some capex reductions, deepwater E&P will play a significant role in meeting global energy demand well into the future, Bob Fryklund at IHS told oil and gas professionals at the OTC luncheon “Deepwater Exploration: a View Forward” on May 4.

“For the last couple of years, we’ve been fixated mostly on shale,” Fryklund said. “In some places, we say we have shale fever, but deepwater still has a very important role to play.”

By 2040, the industry will need to bring 50 MMbbl/d into production to keep up with demand and to make up for decline of existing reserves, Fryklund said.

“We already have some of that in sight in fields that are under development or under appraisal,” he said. “But we need 30 million barrels a day of yet-to-find liquids. What we have on our charts now is developments that have been sanctioned. They will make up about a third of our requirements for future production, but there are more prospects in the inventory. Most of them will survive even at today’s prices. I know most of you are pricing these out at $60 to $70 a barrel for the next five to seven years out. That creates a fairly bright picture for the first 10 billion of our remaining needs, but where are we going to find the next bunch?”

The industry needs to think about what to do for the long term, Fryklund said.

“Let me add that the Gulf of Mexico also has a substantial role to play. The Gulf of Mexico—particularly in the Tertiary and the Miocene—is feeding the pipelines. This play contributes a much smaller number—about one-fifth of that 10 million—but it’s still positioned to grow and there are new plays, particularly the Jurassic, that are just beginning to unfold. Some of the projects are under attack right now because of the down cycle, but operators are starting to think more long term, even looking at breakeven [prices] of less than $60,” he said.

“When we look at some of the companies and look at the unsanctioned projects going out to 2030, you can see that at $60 a barrel, it’s still a broad portfolio. If you look at the band of projects that fall between breakevens of $60 to $80, that’s what most everyone is focusing on,” he continued. “Many governments are looking at price and breakeven graphs and thinking that maybe it’s time to adjust their terms. We’re seeing that now in places like Colombia and Mexico.”

The industry also is going through a period of changes in structure, Fryklund said.

“International operators, which are predominantly the ones involved in deepwater, are cutting their capex, but the cuts range in amount, depending on the size of the operator,” Fryklund said. “Exxon Mobil is only cutting its capex by about 12%. Those that are a little bit smaller are cutting theirs by about 20%.We’re seeing segmentation occurring within the industry that’s driven very much by asset class. Whether you’re in deepwater, unconventionals or heavy oil sands, we’re seeing a separation based on asset size. We’re also seeing a change, at least in North America, in the way people are thinking. If you think of independents, they’ve always been focused on growth. What we’re seeing in North America now is that growth at risk. Now that model is being questioned.”