* Deepwater seen working in Brazil, Gulf of Mexico
* Long-cycle projects require $60-$80/bbl oil price
* World will require deepwater to meet demand
By Ron Bousso and Karolin Schaps
LONDON, Oct 18 The deepwater oil industry is not
dead, even after the brutal drop in oil prices in recent years,
but activity will focus on regions such as Brazil and the Gulf
of Mexico where resources are large and costs low, executives
said on Tuesday.
Sanctioning of multi-billion dollar projects, that take
years to develop and which drove oil supply growth earlier this
decade, ground to a near halt since the oil price collapse in
mid-2014 as companies dealt with a sharp drop in revenue.
U.S. shale oil production has been able to sharply reduce
its development costs in recent years to stay profitable at $50
a barrel in some cases, John Hess, Chief Executive Officer of
U.S. independent Hess Corp told the Oil & Money
"You will need prices in excess of $60-$80 a barrel to get
the long-cycle projects running," Hess said. "We are not
investing enough today to provide the projects for long-cycle
that the world is going to need."
"Not all deepwater is equal," Andrew Gould, board member of
Saudi Arabia's state-run oil company, said.
"There are really only three areas that have the critical
mass to allow economies of scale. These are the U.S. Gulf of
Mexico, the North Sea, particularly the Norwegian area, and
Brazil," he added.
"These areas have the engineering and supply supporting
proximity that can mobilize resources in a way that is
impossible in remote areas," Gould, former chairman of BG Group,
which Royal Dutch Shell acquired earlier this year,
Gould gave the example of Statoil's Johan Castberg
field development in the Norwegian North Sea where costs have
been reduced from an original estimate of $16 billion to around
$6 billion due to cost deflation and simplification of
Similarly, BP's Mad Dog project in the Gulf of Mexico is
expected to be developed at nearly half of its original costs of
BP Chief Executive Officer Bob Dudley told reporters at the
conference that a final investment decision (FID) on the Mad Dog
project might be made over the next six months.
Dudley said Mad Dog II will "probably" be sanctioned this
quarter or in the first quarter of next year, depending on
agreement with its partners.
"There will be FIDs. Investments are back but only the best
ones," Dudley told reporters on the sidelines of the conference.
Dudley expected oil prices to remain within a range of $50
to $60 a barrel next year and not exceed $70 a barrel by the end
of the decade.
"Good deepwater in areas of critical mass will be developed
and it is encouraging to see operators already reacting to
reduce developing costs," Gould said.
The world will require around 40 million barrels per day of
new oil production over the next 10 years to meet annual demand
growth of around 1 million bpd and a natural field decline of
some 30 million bpd, Hess said.
Oil majors such as Chevron are increasingly focusing
their smaller budgets production growth on short-cycle plans
such as shale and shallow water projects in order to benefit
from faster income.
Ali Moshiri, President of Chevron's Africa and Latin America
Exploration and Production said that mega projects such as heavy
oil and extra heavy oil developments in Canada and Venezuela, as
well as some deepwater production, will be "very difficult" to
develop unless prices reach $60 to $80 a barrel.
"From a practical point of view, certain projects will be
pushed into the future," Moshiri said.
(Editing by William Hardy)