Onshore U.S. is not the only place where operators can find short-cycle opportunities that producing oil and gas within a few years. The shallow waters of Mexico’s Sureste Basin and onshore Egypt are among the low-risk opportunities worth exploring, according to a Jan. 30 report by HIS Market.
The report identifies 5 billion barrels of oil equivalent (5 Bboe) of resources outside North America in smaller or underperforming reservoirs. Break-even points are below $40/bbl
Key for producers is targeting mature or late-life basins both onshore and offshore or shallow water that are in low- risk areas. Frontier areas, typically considered high risk depending on location and geological conditions, can be less of a gamble in proven basins such as Brazil’s Espirito Santo Basin, IHS said.
Oil and gas companies are emerging from the oversupply-driven, profit-snatching downturn with more efficient, leaner and smarter ways of operating. More than three years after the downturn, operators are staying focused on tamping down costs and gaining efficiently through technology, despite a moderate price rebound.
Oil prices have slowly climbed with futures trading last week at more than $66/bbl, up from prices as low as $27/bbl in February 2016. However, long-suffering oil service companies are raising drilling rates—particularly for U.S. shale producers— as rigs return to service and demand grows.
“Stagnant oil prices continue to limit large-scale investments in global exploration worldwide, including deepwater plays, and many onshore U.S. projects are not yet cash-flow positive, so energy investors are demanding financial returns,” said Kareemah Mohamed, associate director, plays and basins research at IHS Markit, and author of the analysis. “These investors want to see companies demonstrate greater capital discipline and growth while living within their cash flow. The focus has moved away from simply reserves capture, to production growth, and now to value maximization. In this environment, reduced tolerance for exploration risk persists.”
The analysis points the industry toward other short-cycle assets offering a chance to grow returns. Several major oil companies, such as ExxonMobil Corp. (NYSE: XOM), have expanded in the Permian Basin to speed up returns on investment. ExxonMobil said Jan. 30 that it plans to triple its production by 2025 to 600,000 boe/d.
IHS analysts said they studied mature and late-life basins in Brazil, Egypt, Mexico, Nigeria and the North Sea. Offshore, the areas are known for the deepwater, longer-cycle potential. However, IHS pointed out areas with existing infrastructure and production are prime short-cycle targets, meaning they can “generate first cash within one to two years of development, or, in the case of new entrants, projects that progress to final investment decision [FID] in less than three years.”
By contrast, deepwater field development typically lasts seven years, according to IHS.
Low-risk opportunities identified by IHS include near-field exploration and step-out drilling onshore Egypt and offshore Mexico’s shallow-water Sureste Basin in the Gulf of Mexico, taking between one to three years from discovery to FID. The latter is where Houston-based Talos Energy and partners Sierra Oil and Gas and Premier Oil struck oil with the Zama-1 well. The Upper Miocene discovery is estimated to hold up to 2 Bbbl of oil. The well was drilled in a block where no drilling had previously occurred.
Eni also has had success in Mexico’s Sureste, where development of the Amoca Field, located at a water depth of 25 m, is on a fast-track plan. In July 2017, the Italian major increased its estimated resources in place at Amoca to 1 Bboe after its Amoca-3 well struck oil in the Orca and Cinco Presidents formations. The company is targeting a breakeven of less than $20/bbl from Amoca, according to a Financial Times report.
Other low-risk short-cycle opportunities, taking between three and five years from discovery to FID, include tiebacks on the Norwegian Continental Shelf and Nigeria’s Niger Delta, according to the analysis. Medium-risk opportunities include frontier areas in Brazil’s Espirito Santo Basin.
Utilizing a whole-basin strategy is also essential to maximize value and lower risks, IHS said.
“We’ve observed that the best results occur when operators target basins with materiality and two or more working petroleum systems, stacked reservoirs, existing infrastructure, service-sector capacity and technical knowledge,” Jerry Kepes, executive director for plays and basins research at IHS Markit, said in a statement about the report.
Kepes said moving from a project-by-project basis to a whole-basin strategy was essential to advancing research given changing investor sentiment about maximizing value, lowering risk tolerance and the nature of shorter-cycle projects in mature basins.
“Whole-basin strategies can include ‘field growth’ where the focus is on targeting new barrels in old fields, but can also include upfront, new ventures work that targets shorter-cycle barrels in under-explored areas in existing commercial basins,” Kepes said. “Some of those mature basins present fresh opportunities for operators because an E&P opening makes new acreage available.”
Velda Addison can be reached at firstname.lastname@example.org.