August 26, 2015
Publisher: GEOExPro, October Edition
A key challenge for the E&P industry over the next years will be to mature the discoveries made during the last five years, and converting them into commercial fields. The two regions with the largest exploration success over the last decade are South America and Africa. The subsalt discoveries in Brazil and the gas discoveries in offshore Mozambique and Tanzania were the key drivers for this success. At the time of discovery, these discoveries were commercial and expected to generate high activity and production growth in the medium term.
The figure shows the average real Brent breakeven oil price for different sources of new production. The breakeven price is the oil price that gives a net present value of zero when all future costs and governments take are included. By looking at the chart, few of the resources are commercial with an oil price lower than 50-60 USD/bbl. To improve the economics in the discoveries, both the E&P and oilfield service companies will try to be more efficient and come up with new technology.
In addition to the economics of the discoveries, other factors are making it difficult to develop the new volumes. In Brazil the combination of strict local content requirements, scarcity of human capital, cost inflation, corruption, and the fact that Petrobras is the sole operator for “strategic” assets has limited the development. This problem became visible when Petrobras recently revived down its 2020 production goal by 1.5 million bbl/d.
The development of LNG projects in East Africa has also slowed down; here new fiscal regimes in Tanzania have contributed to uncertainty around the projects, and in Mozambique operators are struggling to come up with joint development solutions.
With the current low commodity prices, sanctioning of new projects in Africa and South America will be challenging. The focus will be on cost saving and efficiency gain to make these fields more attractive. Rystad Energy believes that in long term commodity prices have to come up, and then these regions are well positioned to grow due to the recent exploration success.
Espen Erlingsen, VP Analysis
Phone: +47 24 00 42 00
Mobile: + 47 41 44 77 61
Julia Weiss, VP Marketing
Phone: +47 24 00 42 90
Mobile: +47 48 29 87 61
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.