Oil and gas companies are set to enter 2018 in their best shape since oil prices collapsed. It is a common belief that many operators will now focus on demonstrating that they can thrive at low prices. The outlook for the deep- and ultradeepwater market is positive, with a forecast capital growth rate of approximately 8% between 2014 and 2018.
From an operator perspective, the upcoming 5 years are expected to see Petrobras’ dominant market share decrease as a result of the increase in activity by independent operators such as Anadarko and Noble.
Now that the belt-tightening is done, companies are looking to deliver profitable growth and build for the future. We also expect to see signs that the investment cycle is starting to turn and the sector has reset itself to operate at lower commodity prices.
By resetting their cost base (with big advances in 2016), the majors/national oil companies greatly expanded their opportunity set in a lower-for-longer scenario. Deepwater break-evens are frequently being pegged below $50/bbl now. Total expects to bring “a number” of projects to final investment decision over the next 18 months.
Meanwhile, Shell said it has a decade of inventory in the sub-$40/bbl range, and in some cases sub-$30 range, in deep water. Shell also sees break-evens in Brazil well below $40/bbl across the board. Shell Chief Executive Officer Ben van Beurden said he is ready to grow in deep water now, not at some point in the future.
“We need both characteristics in our portfolio,” he said. “What we like about the deepwater business is indeed the very high free-cash-flow generative nature of it, once you pass the investment hump, which gives a lot of resilience, of course, for the portfolio when it is stable … . [Compared with shale] they complement each other, and that’s why we want to have roughly comparable strength—I wouldn’t say equal strength—in both of them.”
Companies will need to find the right formula to win back investors after a year of poor stock market performance in 2017. Demonstrating that free cash flow can grow in a low-price environment and fund higher shareholder distributions will be a core focus. Companies must also build a compelling case for long-term investment. This may not happen in 1 year, but they will need to show clear progress in 2018.
This Month's Technical Papers
Recommended Additional Reading
OTC 27850 Stones Development: Best-in-Class Risk Reduction and Cost Improvement During Project Execution by Maria Pena, Shell Exploration and Production, et al.
OTC 27947 Driving for Competitive and Affordable Projects in the Gulf of Mexico by David De Pledge, Shell International Exploration and Production, et al.
SPE 180350 Integrated Drilling Strategy Leads to Successful Execution of the First Highly Deviated Deepwater Well in Mexico by I. Przhegalinsky, Schlumberger, et al.
Morten Iversen, SPE, Well Integrity Section Head, Karachaganak Petroleum Operating
01 May 2018
Can You Measure Reservoir Depletion While Drilling?
Shale explorers run very few logs into horizontal wells, making it difficult to understand the effects of reservoir depletion in tightly spaced wells. This new technology is trying to change that.
New Modeling Code Sees Deep Inside Fractures, May Change Thinking On Well Spacing
Operators are working with a young startup company to overhaul how the unconventional sector has traditionally interpreted one the most common tests used to influence well completion designs.
Innovative Pressure Map Offers Insights on Frac Hits
Well-interference issues can be hard to diagnose, but this startup may be figuring that out. The data-driven process it developed can also help operators come up with more effective ways to use diverters.
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09 August 2018
14 August 2018