The recent drop in oil prices doesn’t appear to be deterring offshore oil and gas operators from plans to sanction projects as the sector continues to recover from the latest market downturn, analysts say.

“With Brent Blend now commanding only about $60 per barrel, operators still plan to spend more next year and move forward on project sanctioning,” according to Rystad Energy, a Norway-based energy research and consulting firm. “More than 85% of the projects that we expect to be sanctioned in 2019 will generate returns greater than 10% even at current oil prices, as development costs have been reduced by as much as 30% since 2014.”

The market downturn forced oil and gas companies to operate smarter, looking for savings and ways to improve operations with eyes on budgets. Solutions were found in technologies, changed development plans calling for fewer wells or more phases, utilization of existing infrastructure, collaboration, standardization and negotiation for lower rates and service costs.

The steady offshore recovery is expected to continue despite today’s continued market uncertainty, clouded by growing inventories and expectations for a slowdown in global economic growth.

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With about $210 billion expected to be spent worldwide on offshore oilfield services in 2019, the analysts’ outlook for such contractors is seen as “strong.” Rystad forecasts 110 projects are targeting sanction next year. That’s more than double the 43 offshore projects sanctioned in 2016.

“The offshore service market is like a super tanker: It takes time to accelerate. The uptick in new projects in 2017, 2018 and now 2019 will be enough to turn revenue growth positive to mid-single digits as offshore capex is set to increase due to the recent years of capital commitments,” said Audun Martinsen, head of oilfield service research at Rystad Energy. “And on top of that comes expected increase in operating expenses.”

So far this year, more than 90 projects have been sanctioned, according to Rystad.

News of several final investment decisions (FID) came just this month. BP Trinidad and Tobago’s moved to sanction two new gas developments offshore Trinidad: the Cassia compression platform and the three-well Matapal subsea tieback to the Juniper platform. In addition, Exxon Mobil Corp. announced in December its decision to develop the Barracouta gas field in the Gippsland Basin offshore Victoria, Australia.

“The projects on track to be sanctioned next year have total greenfield commitments representing about $120 billion,” according to Rystad.

Most of the 2019 projects will be in the Middle East (30%), followed by South America (25%), Africa (15%) and Asia (15%) with the rest in waters offshore North America and Europe, according to Rystad.

On the list of anticipated FIDs for early 2019 is the Exxon Mobil-led Liza Phase 2 development, which will use a second FPSO designed to produce up to 220,000 barrels per day (bbl/d), offshore Guyana. The development is on the 26,800-sq-km Stabroek Block, where Exxon Mobil and partners have made 10 discoveries that have pushed recoverable resource estimates past 5 billion barrels of oil equivalent.

FID is also anticipated by February for the Bonga Southwest oil field offshore Nigeria. The Royal Dutch Shell-operated field is expected to produce 180,000 bbl/d and generate a profit at below $50 per barrel.

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“Offshore operators are quite trigger-happy on FIDs these days, despite the recent reduction in oil prices. 2018 saw the lowest obtainable unit prices since 2006, as much as 30% down from the peak in 2014, and that makes their cost per barrel and breakeven prices highly favorable,” Martinsen said. “Couple that with one of the most profitable years for E&Ps in decades in 2018, and the recent production cut agreement by OPEC and Russia—offshore operators want to focus on field development again.”

Velda Addison can be reached at vaddison@hartenergy.com.

Offshore