Oil and gas companies have taken some stalled projects off the shelves, pushing the number of developments reaching final investment decisions (FID) so far in 2017 above that of last year, according to Norway-based energy consulting firm, Rystad Energy.
But that doesn’t mean the tide has turned.
“In spite of this apparent positive momentum, the FID delay list has continued to grow,” Readul Islam, research analyst for Rystad Energy, said in a news release.
Commodity prices might have recovered some of the loss incurred since 2016, but not enough to give all investors enough confidence to proceed with stalled projects.
Operators of deepwater projects benefited the most from their ability to “squeeze the service providers pretty much all across the value chain,” Islam told Hart Energy in an emailed statement. This led to lower capex and opex requirements; however, “costs haven’t decreased enough, and [commodity] prices haven’t risen enough to make margins manageable across the board.”
Yet some projects are passing the hurdle. Lower costs coupled with greater standardization, efficiency and collaboration have had a role, Islam added.
The consultancy said it has been tracking FID delays since the second-half of 2014—when the supply and demand imbalance began to send commodity prices tumbling—to post-appraisal, pre-sanctioned upstream projects. Of the delayed projects, Rystad said 17 have since been launched. Combined, these projects—which include onshore and offshore projects—account for an estimated $78 billion of development spending, according to Rystad.
Making up a large chunk of this amount is the nearly $37 billion Tengiz future growth and wellhead pressure management project in Kazakhstan. The project, led by Chevron Corp. (NYSE: CVX) affiliate Tengizchevroil, a joint venture with ExxonMobil Corp. (NYSE: XOM), KazMunayGas and LukArco, aims to more than triple production at the oil field to 850,000 bbl/d.
The reality of bringing in less money from hydrocarbon resources produced, as oil and gas prices dropped, sent companies back to the drawing board to find savings. In some instances, the efforts are bringing down project costs enough to make them economic in today’s market conditions. In other cases, such as BP’s latest project to reach FID, firming up sales contracts is playing a key role.
News of three project sanctions was delivered just last week, which could be considered a rarity in itself.
Among these was the BP Trindad and Tobago-operated Angelin gas project offshore Trinidad and Tobago. BP announced the sanction of the $500 million four-well development on June 2, more than two decades after the field was originally discovered by the El Diablo well and about 11 years after it was appraised by the La Novia well. First gas is expected in first-quarter 2019.
The development, which will include a new platform, will have the capacity to produce from Angelin about 600 million standard cubic feet of gas that will flow to the Serrette platform hub via a new 21-km pipeline, BP said June 2.
Just a day earlier Eni and its partners shared word of their decision to fund the massive Coral South floating FLNG project offshore Mozambique. Rovuma Basin’s Coral Field, believed to hold about 450 Bcm (16 Tcf) of gas in place, was discovered about five years ago. The development is part of Eni’s plan to become a “global integrated gas and LNG player,” according to the company’s CEO, Claudio Descalzi.
Husky Energy also said last week that it was moving forward with its $1.6 billion White Rose West project offshore Newfoundland, Canada.
“We’ve made significant improvements to the project since it was first considered for sanction, including identifying numerous cost savings, achieving a 30% improvement in capital efficiency and increasing the expected peak production rate by 40% over our initial estimate,” Husky CEO Rob Peabody said. “Moving forward with this project is a significant milestone for Husky, while creating jobs, royalties and other benefits for Newfoundland and Labrador.”
Plans for the deepwater project include a fixed wellhead platform tied back to the SeaRose FPSO vessel. With first oil expected in 2022, the project is expected to have a peak production of about 75,000 bbl/d in 2025.
Others reaching FID this year have included BP’s Mad Dog Phase 2 in the U.S. Gulf of Mexico and Noble Energy’s Leviathan offshore Israel in the Mediterranean. Rystad pointed out that other developments in China, Iraq and Vietnam have also reached such milestones.
Since Rystad last published its FID report in January 2016, the list has grown in almost all themes, except oil sands, “which is not surprising since oil sands projects are largely confined to one province in Canada, while all other themes have a global candidate pool,” Islam said.
More than 100 projects remain delayed.
“Stalled oil sands projects haven’t been able to move much due to the low value of the ultra-heavy oil or the high costs of upgraders,” Islam said. “LNG projects have their cycles slightly decoupled from oil prices and different priorities, and a couple of stalled projects have been launched (Tangguh Phase 3, Coral), but more still remain stuck.”
The delayed projects account for about 35 Bboe and an estimated $30 billion in spend, Islam added.
The price for a barrel of West Texas Intermediate has dropped from more than $107/bbl in the summer of 2014 to as low as $26/bbl in February 2016. In recent months, the oil price has held steady around $50/bbl.
But Rystad anticipates additional FIDs this year.
“Of the top 10 2017 expected FIDs by resource volume, six are deepwater projects,” Islam said. Of these six, five are projects for which FIDs had been delayed.
“Utilizing a mix of standardization, collaboration and cost compression, operators will try to progress projects with good economics before service prices start to creep back north,” Islam added.
One of the most anticipated FIDs expected soon is Phase 1 of ExxonMobil’s deepwater Liza development offshore Guyana. The project includes use of an FPSO.
“Continuing with the FPSO theme, a couple of delayed FPSO projects could be sanctioned off Brazil,” Islam said. “Large potential gas project sanctions by the end of 2017 include the second phases of Eni’s Zohr project off Egypt and BP’s Khazzan tight gas project onshore Oman.”
Whether the industry sees movement on more projects remains to be seen.
“The outlook of sustained higher prices is required to sell potential project sanctions to decision makers,” Islam added.
Velda Addison can be reached at firstname.lastname@example.org.