$150b Projects May Suffer Setback Over Sliding Nigerian Oil Prices
Written by Sulaimon Salau
Nigerian Guardian
THE effects of the dwindling crude oil prices may have continued to hit hard on the global oil industry as indications emerged that several oil and gas exploration projects worth about $150 billion are likely to be put on hold next year.
Although, Nigeria is not listed among the impacted projects, there were indications that the sliding prices and regulatory uncertainties in the sector have affected major industry initiatives in the country.
Facts obtained by The Guardian revealed that the oil rig operations, a measure of exploratory activities in the industry, have been on the decline over the past two years.
Specifically, the oil rig counts have fallen from 43 active ones in 2013 to 33 as at April 2014. This is seen to be mostly affected by the uncertainties around the Petroleum Industry Bill (PIB).
A recent graphic outlook on the global scale showed that the plunging oil prices has continued to render some of the projects uneconomical, until the prices rebound.
As big oil fields that were discovered decades ago begin to deplete, oil companies have been trying to access more complex and hard to reach fields located in some cases in the deep-sea. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.
However, the outlook for onshore and offshore developments from the Barents Sea to the Gulf of Mexico looked as uncertain as the price of oil, which has plunged by 40 percent in the last five months to below $70 a barrel.
Next year, companies are expected to make final investment decisions on about 800 oil and gas projects worth $500 billion, totalling nearly 60 billion barrels of oil equivalent.
But with the analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, according to Head of Analysis at Rystad Energy, Per Magnus Nysveen.
“At $70 a barrel, half of the overall volumes are at risk,” he said.
Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.
Analysts predicted that Chevron’s North Sea Rosebank project may be among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics.
“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go area,” said Bertrand Hodée, research analyst at Paris-Based Raymond James.
He estimates a development cost of $10 billion for Rosebank, with potential reserves of 300 million barrels, meaning the Chevron would only recoup $33 a barrel.
Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years.
In response to Reuters, the company said “the Rosebank project is in the Front End Engineering and Design phase. The review of the economics and the additional engineering work is progressing... It is premature to make any statements on an FID date.”
Norway’s Statoil this week said it had postponed until next October a decision to invest $5.74 billion in the Snorre field in the Norwegian Sea as its profitability was under threat.
New oil fields typically require four to five years to be developed and billions before the first drop of oil is produced.
Any cutbacks in oil production bodes ill for international oil companies that are already struggling to replace depleting reserves as exploration becomes harder and discoveries smaller. It also points to tighter supplies by the end of the decade.
Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns.
Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.
Shell’s liquefied natural gas (LNG) project in Canada’s British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment.
According to research by Citi, the project requires oil at $80 a barrel to break even.
Royal Dutch Shell’s Chief Financial Officer, Henry Simon indicated in October that it was “less likely” to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.
Also in the Gulf of Mexico, one of the most attractive oil production areas in the world, projects are facing challenges.
BP last year put on hold a decision on its Mad Dog Phase 2 deep water project in the Gulf of Mexico after its development costs ballooned to $20 billion and the oil major is now expected to further delay an investment on the field’s development.
“BP were talking positively about bringing it back, but now it may be put on hold,” BMO Capital Markets analyst Iain Reid said.
BP’s chief financial officer Brian Gilvary however said in an analysts briefing in October that he expected Mad Dog Phase 2 to be sanctioned in the first quarter of 2015.
Statoil’s Johan Castberg field in the Barents Sea, which was expected to get its FID in 2015, seems unlikely to get the go-ahead at the moment given it has an estimated project cost of $16-$19 billion, Hodée said.
Statoil said that the final project design is due in the summer of 2015. Its giant Johan Sverdrup field in the North Sea is still on track for development with a price tag of $32.5 billion.
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| Nigerian Oil Minister and OPEC President Diezani Alison-Mudueke. |
Nigerian Guardian
THE effects of the dwindling crude oil prices may have continued to hit hard on the global oil industry as indications emerged that several oil and gas exploration projects worth about $150 billion are likely to be put on hold next year.
Although, Nigeria is not listed among the impacted projects, there were indications that the sliding prices and regulatory uncertainties in the sector have affected major industry initiatives in the country.
Facts obtained by The Guardian revealed that the oil rig operations, a measure of exploratory activities in the industry, have been on the decline over the past two years.
Specifically, the oil rig counts have fallen from 43 active ones in 2013 to 33 as at April 2014. This is seen to be mostly affected by the uncertainties around the Petroleum Industry Bill (PIB).
A recent graphic outlook on the global scale showed that the plunging oil prices has continued to render some of the projects uneconomical, until the prices rebound.
As big oil fields that were discovered decades ago begin to deplete, oil companies have been trying to access more complex and hard to reach fields located in some cases in the deep-sea. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.
However, the outlook for onshore and offshore developments from the Barents Sea to the Gulf of Mexico looked as uncertain as the price of oil, which has plunged by 40 percent in the last five months to below $70 a barrel.
Next year, companies are expected to make final investment decisions on about 800 oil and gas projects worth $500 billion, totalling nearly 60 billion barrels of oil equivalent.
But with the analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, according to Head of Analysis at Rystad Energy, Per Magnus Nysveen.
“At $70 a barrel, half of the overall volumes are at risk,” he said.
Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.
Analysts predicted that Chevron’s North Sea Rosebank project may be among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics.
“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go area,” said Bertrand Hodée, research analyst at Paris-Based Raymond James.
He estimates a development cost of $10 billion for Rosebank, with potential reserves of 300 million barrels, meaning the Chevron would only recoup $33 a barrel.
Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years.
In response to Reuters, the company said “the Rosebank project is in the Front End Engineering and Design phase. The review of the economics and the additional engineering work is progressing... It is premature to make any statements on an FID date.”
Norway’s Statoil this week said it had postponed until next October a decision to invest $5.74 billion in the Snorre field in the Norwegian Sea as its profitability was under threat.
New oil fields typically require four to five years to be developed and billions before the first drop of oil is produced.
Any cutbacks in oil production bodes ill for international oil companies that are already struggling to replace depleting reserves as exploration becomes harder and discoveries smaller. It also points to tighter supplies by the end of the decade.
Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns.
Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.
Shell’s liquefied natural gas (LNG) project in Canada’s British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment.
According to research by Citi, the project requires oil at $80 a barrel to break even.
Royal Dutch Shell’s Chief Financial Officer, Henry Simon indicated in October that it was “less likely” to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.
Also in the Gulf of Mexico, one of the most attractive oil production areas in the world, projects are facing challenges.
BP last year put on hold a decision on its Mad Dog Phase 2 deep water project in the Gulf of Mexico after its development costs ballooned to $20 billion and the oil major is now expected to further delay an investment on the field’s development.
“BP were talking positively about bringing it back, but now it may be put on hold,” BMO Capital Markets analyst Iain Reid said.
BP’s chief financial officer Brian Gilvary however said in an analysts briefing in October that he expected Mad Dog Phase 2 to be sanctioned in the first quarter of 2015.
Statoil’s Johan Castberg field in the Barents Sea, which was expected to get its FID in 2015, seems unlikely to get the go-ahead at the moment given it has an estimated project cost of $16-$19 billion, Hodée said.
Statoil said that the final project design is due in the summer of 2015. Its giant Johan Sverdrup field in the North Sea is still on track for development with a price tag of $32.5 billion.
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