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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The 2 Nations Driving The Recovery In Offshore Oil

Guyana drilling ship

Offshore oil and gas drilling is set for a rebound this year following a major 2020 pullback when exploration and production companies deferred many activities due to the pandemic and the collapse in oil prices. Lower lifting and breakeven costs at the most prolific offshore oil regions off Brazil and Guyana are setting the stage for a rebound in offshore drilling in South America, which will be one of the main growth drivers of global offshore activity this year, analysts say.  

Drilling and well services spending in Latin America is forecast to grow strongly, thanks to continued offshore activity in Brazil as Brazil’s state oil giant Petrobras focuses on the deepwater pre-salt basin. The promising Guyana basin will also see new wells drilled and discoveries developed, according to the latest World Drilling & Well Services Market Forecast 2021-2025 Q1 by Westwood Global Energy.  

Global Offshore Spending To Grow From 2020 Lows 

Although operators around the world remain cautious about capex, this year’s expenditure on drilling & well services (DWS)—both offshore and onshore—is set to grow to US$156 billion, slightly up from last year. The higher spending will be the result of higher oil prices and forecasts of recovery in demand, Westwood Global Energy said.

The United States, China, and Russia will lead onshore drilling activities, while Brazil and Guyana will be the key drivers of offshore spending, the analysts said.

Rystad Energy also sees South America—Brazil and Guyana in particular—as the main contributor to offshore drilling growth. Offshore activity is set for annual increases of around 10 percent in each of 2021 and 2022, the energy research firm said last week.

“In contrast to previous years, when the North American shale sector led production growth, we expect the onshore and offshore shelf in the Middle East and the deepwater market in South America to be the main drivers of growth going forward,” said Daniel Holmedal, energy research analyst at Rystad Energy.

Related: U.S. Oil Rig Count Posts Double-Digit Gains As Oil Prices Rise
Offshore investment is set for a rapid rebound this year, driven by deferred projects from 2020 and a “resurgent Petrobras,” Thom Payne, Head of Offshore at Westwood Global Energy, wrote in an analysis in February.

Low breakeven costs make Brazil’s pre-salt and Guyana’s basin very attractive drilling opportunities, even if oil prices were at $40 per barrel.

Projects in Brazil’s pre-salt region have breakeven oil prices as low as $35 per barrel, Effuah Alleyne, Senior Analyst at GlobalData, said at the end of last year.

“Guyana’s ultra-deepwater projects in the frontier Guyana-Suriname Basin have breakeven oil prices as low as $23/bbl, with short-term production expected to grow 10-fold by 2024 from projects such as Liza Phase 2,” Alleyne noted.

Guyana – A Top Priority For Exxon

Exxon’s continued exploration and development on the Stabroek block offshore Guyana is set to drive offshore drilling in the country in the coming years.

Guyana is one of the top priorities in the U.S. supermajor’s strategy to focus on high-return and cash-generating projects that would allow it to grow its dividend through 2025.

“90 percent of our upstream investments in resource additions, including in Guyana, Brazil and the U.S. Permian Basin, generate a 10 percent return at $35 per barrel or less,” Exxon’s chairman and CEO Darren Woods said on the investor day last month.

Despite disappointing early 2021 drilling results, exploration activity in Guyana is on track to set an annual record of 16 wells, including on the Stabroek block, according to Rystad Energy.

Related: Recent SEC Decision Could Spark Investment In Big Oil

Exxon is also currently developing the Liza Phase 2 Project, designed to pump up to 220,000 bpd with a floating, production, storage, and offloading vessel (FPSO), with start-up expected in the middle of next year. Exxon has also recently made the final investment decision on the Payara oilfield offshore Guyana, expecting the project to yield up to 220,000 bpd of crude when commercial production begins in 2024.

Brazil’s Petrobras Focuses On The Prolific Pre-salt Basin


Petrobras is heavily divesting non-core assets onshore and offshore, as well as refinery operations, as it continues to cut its massive debt and bets big on boosting production and development in the very prolific and low-cost pre-salt basin.

Over the past five years, the share of the pre-salt region in the company’s oil and gas production has jumped to 66 percent in 2020 from just 24 percent in 2015, Petrobras said earlier this year when it announced that its 2020 annual oil and gas production hit a record high. Production in the pre-salt basin totaled 1.86 million barrels of oil equivalent per day (boed) in 2020 out of Petrobras’ total 2.84 million boed output last year.

Despite the crash in oil prices, Petrobras continued its strong cash flow generation, with free cash flow at US$10.4 billion for the first nine months of 2020, Fitch Ratings said in February, affirming its ratings on Petrobras.

The strong cash flow generation, even with collapsing oil prices the primary result of cost and capex reductions. Petrobras reported a material decline in lifting costs in 2020 to around US$5.10 per barrel of oil equivalent (boe) from approximately US$9.6/boe in 2019, Fitch said. The significant decrease in lifting costs was the result of cost reductions and the growing share of Petrobras’ pre-salt production, which has a lower lifting cost than legacy production, the rating agency noted.  

By Tsvetana Paraskova for Oilprice.com 

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  • George Doolittle on April 01 2021 said:
    Anything is possible with prices this high at the moment.

    Long $cnx Consol Energy
    Strong buy

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