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* Oil price recovery, low service cost boost offshore
* Firms slash costs of deepwater projects by 50 pct
* Exploration spending halved since 2014
By Ron Bousso
HOUSTON, March 10 Deepwater oil drilling can be
expensive, time-consuming and a hard sell to investors. But the
world's top energy firms are restarting their search for giant
oilfields under the ocean after a two-year lull.
A recovery in oil prices to about $50 a barrel from a
12-year low in 2016 is reviving oil majors' appetite for risk.
Reductions in offshore production costs mean that some
projects may be able to compete with North American shale
fields, executives said at an energy conference in Houston this
The recovery in the industry has so far been focused on
onshore shale output from the largest U.S. oilfield, the Permian
"Our competition over the past years has evolved from 'we
want to be the best in deepwater' to 'we want to compete with
shale' to 'we want to beat the Permian'," Wael Sawan, Royal
Dutch Shell's executive vice president for deepwater,
said in an interview.
Shell is the largest deepwater producer among the world's
top publicly traded oil companies and is set to pump 900,000
barrels per day (bpd) from such projects by the end of the
Firms such as Shell and Exxon Mobil, who specialize
in complex offshore exploration, slashed budgets after oil
prices collapsed in 2014. Spending cuts were so drastic that the
Paris-based International Energy Agency warned this week of a
looming supply crunch beyond 2020.
Shell has cut well costs by at least 50 percent, reduced
logistics cost by three quarters and cut staff by nearly a third
to make developments in areas such as the Gulf of Mexico and
Nigeria profitable at oil prices below $40 a barrel, on par with
the most profitable shale wells, Sawan said.
Other companies such as France's Total have seen
similar cost cuts.
After cutting the cost of deepwater development, companies
are also reviving the search for new resources.
They are focusing exploration efforts on areas close to
existing fields to maximize the chances of discovery and
minimize costs. Many such areas are in Brazil, the Gulf of
Mexico and Southeast Asia.
"It is a very selective, sniper focus," Sawan said.
Some firms are poised to benefit from decreased competition,
lower costs of marine seismic studies and drilling rigs, and
cheaper opportunities to acquire exploration licences from
governments eager to attract investment.
"Right now, we've entered the best time in the last decade
to be in the exploration business," Gregory Hebertson, who heads
Murphy's western hemisphere exploration, said at the
CERAWeek conference in Houston. "There is probably a two- or
three-year window that we can capture the cost efficiency in the
Discovering new resources is essential for oil firms to grow
and to offset natural decline of fields. But deepwater
exploration requires money, time, expertise - and luck.
Some shareholders would prefer that oil firms stick to
other, less risky growth options, said Federico Arisi Rota,
executive vice president Americas for Italy's Eni, which
operates major offshore drilling projects.
"We must compete with alternative growth options that might
be considered more attractive," such as growth through mergers
and acquisitions or investing in shale oil production, Rota
Pressure to limit company spending amid a slow recovery in
oil prices is also putting a break on big exploration campaigns.
"We know exploration spending is not always appreciated by
investors," Kevin McLachlan, head of exploration for Total
RISKIER PLANS AHEAD
Eni is considered one of the most successful explorers after
the discovery of giant gas fields in Egypt in recent years. It
aims at discovering 2 to 3 billion barrels of oil and gas this
year through drilling 115 offshore wells near Africa, Mexico,
Norway and Asia, Rota said.
A "more aggressive" exploration program is planned to start
in 2018 in riskier and more expensive regions such as the
Arctic, which offer the potential big discoveries, he said.
Deepwater resources will be required to keep up with the
growing demand, regardless of output growth in shale oil fields,
Total's McLachlan said.
Such projects are "key to our long-term plan, and we believe
it is the same for the industry no matter the near-term focus on
the Permian," McLachlan said, referring to the largest U.S.
oilfield in west Texas.
Hess Corp Chief Executive John Hess said the
company's Liza development, off the coast of Guyana, was crucial
to his company's growth potential and estimated to have as much
as 2 billion barrels of oil.
"This is one of the largest oil discoveries in the last 10
years," Hess said in an interview.
(Additional reporting by Ernest Scheyder; Editing by Simon Webb
and Brian Thevenot)