Crude oil output growth from deepwater areas may stagnate because current oil prices make it unprofitable to tap new deposits and large discoveries dwindle, a consultant said.
“The pace of growth will slow and then become flat for the next few years,” Michael Rodgers, a partner at PFC Energy, said in an interview. “There were not a whole lot of large commercial discoveries in the last couple of years.” Production from deepwater blocks grew 67 percent a year between 2005 and 2008 following discoveries off Angola and Nigeria. That beat a growth of 1.3 percent in total crude oil output during the same period.
Global deepwater oil production may peak at 7.5 million barrels a day in 2013, Rodgers said. Oilfield service providers including Schlumberger and Transocean and rig builders in South Korea and Singapore are counting on deepwater projects to drive earnings growth. Demand for deepwater drilling equipment, led by Brazil and India, continues to grow at a slower pace amid the global recession and lower crude oil prices, said Transocean, the world’s largest offshore oil driller, on April 22.
“Falling investment in commercial deepwater development will require fewer deepwater platforms in the next five years compared to the last five years,” Rodgers said. Production of oil from the deep seas accounted for 8 percent of global crude produced last year.
Large discoveries
Output in deepwater areas, or those at water depths of more than 1,000 feet (305 meters), soared in the past five years as companies discovered large deposits in Angola, Nigeria and the Gulf of Mexico, Rodgers said.
The majority of deepwater areas have reached “maturity” and current projects are facing delays, he said.
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Oil and gas explorers are postponing or scrapping deepwater projects, potentially reducing crude supplies by as much as 2.4 million barrels a day in 2011, Morgan Stanley said in a report in March. Oil prices in New York have declined more than 66 percent from a record $147.27 a barrel in July last year.
Out of a sample of 46 deepwater projects in places including Brazil, Africa, Norway, Asia and the Gulf of Mexico, about 27 may have an internal rate of return of less than 15 percent, the minimum required for international oil companies to invest in deepwater developments, according to Rodgers. Oil must reach $50 a barrel for some developments to achieve more than 15 percent in returns, he said.
No new contracts have been awarded since August 2008 when Morgan Stanley estimated that companies needed 139 new production platforms to develop fields in deep seas. Since then, 11 orders have been canceled and 46 delayed by an average 15 months, according to last month’s Morgan Stanley report.
Worldwide spending on oil and gas exploration may drop 12 percent in 2009 to $400 billion, according to a report in December by Barclays Capital Research
The authors are Bloomberg News columnists. The opinions expressed are their own