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
The Eagle Ford Still Looks Good to Operators
The Eagle Ford Shale has reclaimed its standing as one of the most attractive US onshore liquids basins, and for good reason. Does this mean more operators will seek to buy in to the play, and could further consolidation take hold following last year’s big deals?
To Solve Frac Hits, Unconventional Engineering Must Revolve Around Them
The struggle to overcome the challenge of frac hits has led to a critical dialogue about which pathway the shale sector should take. One idea is to simply put the problem at the center of every major decision.
Flow-Simulation Model Improves Analysis of Perforated-Rock Cleanup and Productivity
Because of inherent complexities, understanding the characteristics of perforations in downhole environments is a significant challenge. Perforation-flow laboratories have been used to provide insight into cleanup and productivity mechanisms around perforation tunnels.
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18 February 2019
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