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Big offshore oil discoveries should lift OTC spirits

May 6, 2019

The Offshore Technology Conference, the biggest international get-together for the offshore oil and gas industry, has had some tough years as oil prices plunged, abundant supplies kept prices well below their peaks and producers refocused investments to the Permian Basin and other U.S. shale plays.

But the tide is shifting back to offshore development. Companies are finding ways to produce oil more efficiently, increase output and make discoveries, including significant finds in the Mediterranean Sea and off the Atlantic coast of South America.

The discoveries, including three significant ones by Exxon Mobil, are expected to lift enthusiasm this year at OTC, the four-day conference that brings together manufacturers of deep-water drilling rigs and offshore platforms, suppliers that make all manner of equipment from hoses to drill bits, and providers of essential services from helicopters to boats. Conference attendance, which reflects the price of oil and the health of the industry, last year fell to its lowest level in more than a decade to just over 61,000, down from more than 108,000 in 2014, when crude sold for more a barrel.

Oil prices heading into this year’s conference are hovering around $65 a barrel, lower than last year’s $70 but still high enough to profit from rich offshore finds. Some of the world’s largest oil companies have authorized new multibillion-dollar offshore developments. The Gulf of Mexico is producing a record 2 million barrels a day.

Conference chairman Wafik Beydoun is expecting this year’s turnout to match 2018. Producers, he said, will be looking for ways to drill faster and more cheaply offshore so they’re competitive with shale drillers. “We need to lower the costs,” he said.

Sweet spots

The industry has indeed found some new sweet spots offshore. Exxon Mobil, headquartered in Irving, last month announced its 13th discovery off the coast of Guyana in South America, where the company is exploring along with its partner, Hess Corp. of New York. In recent months, Exxon Mobil and Hess have boosted their reserve estimates offshore of Guyana to 5.5 billion barrels of oil, up from 4 billion. Offshore Guyana is Exxon Mobil’s biggest growth area now outside the Permian Basin.

The Guyana finds, along with another Exxon Mobil find, the discovery of natural gas off the coast of Cyprus in the Mediterranean, represent nearly 40 percent of all new oil and gas discoveries made during the first quarter, according to the Norwegian research firm Rystad Energy.

Other big finds included in the first three months of this year include a 250 million-barrel discovery in the North Sea off the coast of the United Kingdom by the China National Offshore Oil Corp. and Spain-based Repsol’s discovery of 1.5 trillion cubic feet of gas, or more than 250 million barrels of oil equivalent, off the coast of Indonesia, the biggest deposit found in that country in nearly two decades. The French energy major Total recently announced its first deep-water discovery in South Africa, which energy experts predict could trigger a rush of exploration by other countries.

Already this year, the pace of discoveries is up 30 percent compared to last year, according to Rystad. In just the first three months of the year, an estimated 3.2 billion barrels of oil equivalent have been discovered, compared to 9 billion barrels for all of 2018.

Some of the newest discoveries are piggybacking off existing projects. The British oil major BP announced in January that it found another 1 billion barrels of oil at an existing oilfield about 150 miles south of New Orleans in the Gulf of Mexico and will build a new underwater production system from eight new wells to boost production by 38,000 barrels a day. BP, the biggest producer in the Gulf of Mexico, also announced two offshore oil discoveries in the Gulf in January but did not include estimates of potential reserves.

The burst of exploration comes after years of decline for the offshore oil and gas industry. In the past four years, global capital expenditures of offshore projects fell by nearly half to $120 billion, compared to $210 billion in 2015, according to the research and consulting firm IHS Markit. The onshore sector has downsized, too, after the two-year oil bust that pushed scores of companies into bankruptcy and slashed tens of thousands of jobs.

But onshore investment has not taken as big a hit. Companies are spending $380 billion onshore this year, down about 30 percent from $550 billion in 2015.

Renewed optimism

Bob Fryklund, chief strategist for the upstream energy group at IHS Markit, calls it a reset. Offshore exploration and production activities have borne the brunt of the decrease in capital investments. Offshore is always the last to recover because it’s a longer business cycle, but companies have shortened the timeline from discovery to production to three years from seven years, he said. As the cycle speeds up, offshore producers have become more competitive with onshore producers.

Optimism is coming back to the industry because of the discoveries, he said, especially in waters that haven’t traditionally seen a lot of drilling.

“It’s slowly coming back,” said Fryklund, adding the oil and gas industry — both onshore and offshore — will never get back to what it was just four years ago.

lynn.sixel@chron.com

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