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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Offshore Oil Closes In On Shale

Offshore crude oil extraction, including deepwater, is closing in on shale in terms of cost thanks to new production technologies, a senior Chevron executive said at an industry event, as quoted by Bloomberg.

The company is laying pump networks on the ocean floor, connecting new wells with already installed platforms, cutting its costs considerably and bringing deepwater oil closer to competing with shale on an equal footing, vice president for upstream, Jay Johnson, said during a presentation at the Scotia Howard Weil Conference in Louisiana.

The upbeat attitude is not limited to Chevron executives, either. Transocean’s chief executive, Jeremy Thigpen, said that at the moment, most of the 29 deepwater oil projects in the Gulf of Mexico have a breakeven level of between US$40 and US$45 a barrel.

Deepwater exploration was the object of much lament during the downturn as it is traditionally costlier than onshore conventional and shale exploration. Indeed, investments were slashed across the industry.

But now that prices have recovered somewhat, offshore explorers are back in the game and seem determined to stay despite shale.

Last year in May, Wood Mackenzie analysts reported that offshore drilling costs were going down, despite still weak oil prices, reflecting the efficiency of the strict cost discipline and the tech innovation drive that helped the oil industry weather the crisis. Related: Trump Looks To Undo Fuel Efficiency Standards

In fact, Wood Mac said last May, by this year some offshore oil projects could break even if crude trades at US$50 a barrel.

Offshore is being helped by rising costs onshore, as well.

A February report from Westwood Energy said that deepwater oil projects are becoming more competitive because the costs of shale drillers are rising on the back of growing frac sand amounts used per well that are pushing the market into a shortage, sending frac sand prices sky-high.

By Irina Slav for Oilprice.com

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  • Henry on March 27 2018 said:
    Of course offshore costs are going down. They are handing out contracts that the OSD are break-even to loss. The days of the frothy profit OSD contracts are over. Its pretty simple. Live a mile off the coast for one month. Now live in the middle of Texas for one month. Tell me whats cheaper and no factor in the work and the transports. ?
  • CorvetteKid on March 27 2018 said:
    DW drilling break-evens a few years ago were close to $75/bbl. They are now $50/bbl. or less.

    Royal Dutch Shell cut the size/weight of the GoM Vito platform by 75% or 30,000 tons. The original layout and size were designed when oil was $100/bbl. It can now make money for shell at $45/bbl. or less.

    Not all DW drilling can be right-sized, but contiguous blocks (see RDS's recent Mexican off-short bidding vis a vis The Whale discovery) help cut costs substantially.
  • Colin on March 28 2018 said:
    West of Shetland Deepwater developments were sanctioned on a $15 oil
    price back in the 90s. Even allowing for inflation that's around $35 today, it makes you wonder why need $50 today.
  • Corvettekid on March 29 2018 said:
    Colin, the reason you need more than the inflation-adjusted costs of the 1990's or 1970's or 1960's is because the costs of extracting more difficult barrels of oil have gone up faster than inflation.

    Lifting costs in Saudi Arabia were $0.50/bbl. in the 1960's. Today they are closer to $5.00 -- a 10-fold increase, even for the super-productive Ghawar Field.

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