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Alt Text

Can We Expect An Oil Price Correction Soon?

While oil sentiment is bullish…

Marathon Abandons $270 Million Ultra-Deepwater Project

Marathon Abandons $270 Million Ultra-Deepwater Project

Marathon Oil announced on December 2 its decision to abandon a key deep-water oil project in the Gulf of Mexico.

The well that Marathon had been drilling had already caused the company some problems. Drilling the well took seven months, and mechanical problems delayed the project’s completion. Marathon said last week that upon completing the project, drilled at 34,600 feet, that it had plugged the well and released its rig. Marathon says that it has no further plans for the block.

The deal was a blow for the company that had already announced plans to abandon some offshore drilling assets in an effort to correct its balance sheet. The dry hole that Marathon drilled probably cost the company around $270 million. Meanwhile, Marathon became one of the largest companies to have announced a cut its dividend in the past quarter. Its upcoming payout will drop to 5 cents per share from the previous 21 cents per share. Related: North America’s Best Shale Patch

But the well was also closely watched because it was located in the Lower Tertiary, an oil-bearing region located at ultra-deepwater depths that have largely been unexploited at this point. Drilling in the Lower Tertiary is technically expensive and difficult. When oil prices were in three-digit territory just a few years ago, interest in the Lower Tertiary spiked. While more expensive, the frontier region made sense when it seemed as if low-cost oil had run out. Plus, the potential oil lying deep below in the Gulf of Mexico could be vast. Marathon’s Solomon well was thought to hold somewhere on the order of 450 million barrels. Related: Central Banks Continue To Rule Equity And Commodity Markets

Marathon’s dry hole puts a chill on interest in the Lower Tertiary, although with today’s low oil prices, few companies are sanctioning new deepwater projects anyways. The latest result from the OPEC meeting likely ensures that oil prices will remain at $50 or lower for the coming months. Oil companies are increasingly deferring on drilling expensive deepwater projects like Marathon’s Solomon.

Marathon has plans to refocus its efforts on shale assets, which offer much lower upfront costs than deepwater drilling.

By Charles Kennedy of Oilprice.com

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