Much has been said about the shale revolution and the low oil prices effects during the first day of the CERAWeek conference in Houston. On the other hand, not so much attention was given to the offshore part of the industry.
This was also acknowledged by John Hess, the CEO of Hess Corporation, a U.S. based independent with assets both in offshore and onshore areas of both in the U.S. and internationally.
Speaking at the Ceraweek panel in U.S. Hess said while the spotlight has been on shale, most people don’t realize that offshore deepwater makes up about seven percent of world oil supply, while shale is five percent.
“While shale was the first to go down (during the oil price crash), offshore deepwater has been the last to go down, and is really at rock bottom.”
Commenting further on the current conditions in the offshore market, Hess said the offshore rig utilization is now at about 50 percent, meaning there’s a lot of equipment lying around that cannot be used.
“Offshore drilling rates, whether it’s for a drillship or semi-submersible have gone from $600.000 a day in the heyday to $200.000 per day today barely covering operating expenses.
Also he said that oil and gas exploration investments globally have shrunk from $100 billion to $40 billion this year.
Hess also highlighted the $40 billion number has been like that for two years.
“So, in sum, we’re not spending enough money, we’re not investing enough, to keep offshore development pipeline full.”
Hess said the consequences of this under-investment will start to show in a few years, echoing a statement by IEA made earlier during the day when it said that oil prices might jump after 2020 if no new projects are sanctioned soon.
John Hess then went on to quote the IEA who said that the industry needs to spend in excess of $600 billion a year to hold global oil and gas production flat. According to Hess, in 2016 the investments were at around $300 billion, while 2017 should be around $410 billion.
So, he said, as an industry we’re not investing enough to ensure that we have enough supply growth to keep up with the demand growth and offset the annual decline in production.
Asked about the company’s offshore investments, Hess said that while most people might think the offshore makes no economic sense in the current oil price environment there are exceptions, and “we are very fortunate to have one of those exceptions in offshore Guyana.”
Hess was referring to the giant Liza discovery recently made by ExxonMobil.
“We’re very fortunate we have Exxon as partner over there, they’re doing a great job. Two years ago, we had a play opener. The largest oil discovery in the last ten years, great reservoir, massive resource.”
The Liza development is expected to be sanctioned in mid-2017. According to the Hess CEO, the project offers very attractive returns even at $40 a barrel.
Hess then again highlighted that the industry needs to invest both in the short cycle and long cycle to avoid the supply crunch that may be looming over the next several years.
Article by Bartolomej Tomić