Offshore still cheaper than shale; oil sands is struggling

October 15, 2015

Offshore resources remain attractive for new production with a breakeven price within the range of 60-65 USD/bbl, concludes Rystad Energy’s in-depth October study of more than 20,000 non-producing liquid fields. 

Offshore holds about one third of the global non-developed resources, where most of the resources are located in the Middle East, Brazil and Norway. These regions have benefitted from large offshore commercial discoveries such as Lula and Libra (Brazil), Hamur (Saudi Arabia) and Johan Sverdrup (Norway).  

“Brazil is an example of this; here we have observed the development wells for new fields performing better than expected and ultimately making the fields more commercial” explains Espen Erlingsen, VP Analysis at Rystad Energy. “In addition, several of these countries’ currencies have weakened against the dollar, resulting in lower costs measured in dollars.”


North America shale remains more expensive than offshore, with a breakeven price of just below 70 USD/bbl. The breakeven price has fallen considerable over recent years. Rystad Energy estimates the breakeven price for wells drilled this year may be 30% lower than the wells drilled in 2014. This is because only the best acreage is drilled combined with efficiency gains and lower unit prices. However, due to high price differentials and the fact that many of the resources are outside the core areas for many of the shale plays, the average breakeven still remains high.

The non-producing oil sands projects have a resource potential of 40 billion bbl of oil, but require an average Brent oil price of around 80 USD/bbl to be commercial. The high breakeven oil price is a combination of high development and operational costs in addition to the high price differential between realized prices for oil sand compared to Brent; currently Western Canadian Select is traded more than 15 USD/bbl lower than Brent. 

“The fact that only onshore Middle East projects have an average breakeven price of below 50 USD/bbl illustrates that the current oil level is not sustainable in the long run. To develop projects needed to balance supply and demand in the long-term, the oil price has to be close 100 USD/bbl,” adds Mr. Erlingsen.

 

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Contacts

Espen Erlingsen, VP Analysis

Phone: +47 24 00 42 00

Mobile: +47 41 44 77 61

espen.erlingsen@rystadenergy.com

 

Julia Weiss, VP Marketing

Phone: +47 24 00 42 90

Mobile: +47 48 29 87 61

julia.weiss@rystadenergy.com

 

About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.

Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.