The global oil industry has certainly turned a corner since January 2016, and nothing says it like Brent Crude spot prices:
January 2016 – Brent low $27.10May 2018 – Brent high $80.5A difference of 197%
These higher prices are here to stay for a while, because global crude stocks have fallen below the five-year average, according to a senior OPEC source, speaking to S&P Global Platts in May 2018. All this tightening in the oil markets has led to the end of the “lower for longer” price narrative, and the beginnings of some concerns about shortages and high prices during the 2020s, which is only a year and a half away:
Why the concerns? Now, the Permian Basin is experiencing pipeline capacity problems and labor shortages which are economic headwinds to increasing oil production indefinitely out of West Texas / Eastern New Mexico. Venezuelan, Libyan, and Iranian contributions to global supply are decreasing. Demand is robust. So, oil markets are tightening, and prices are gradually rising.
With all of this in mind, it’s not unreasonable to conclude that eventually the Oil & Gas industry will have to resume deepwater exploration. Whether we get back to $100+ per barrel is not the question. The question is, will oil prices recover to the point where deepwater projects once again pass financial hurdle rates? They will, because offshore costs have also been dropping:
“Overall, it is estimated that the average capital cost of developing conventional oil projects (both onshore and offshore) dropped by over 40% between 2014 and 2016. Offshore costs have dropped slightly more than the average…” – IEA, April 2018
Many companies that try to re-enter deepwater exploration during the 2020s upturn will find that their skill and technology sets needed for deepwater have atrophied, because they tilted aggressively toward onshore North American shales for years after the 2014 downturn. So while motivated, they may not have the capability. In other words, “The spirit is willing, but the flesh is weak”.
Indeed, Mike Ayling, a longtime Oil & Gas Recruiter in Tulsa, has expressed concerns about the state of knowledge in the industry among early-career geoscience professionals. He believes horizontal drilling through shale without much regard for conventional petroleum system risk factors has led to a loss of skills in the industry:
“I’m really concerned for the profession that young geologists are largely being used to geosteer and not being trained in exploration,” Ayling said. “If you took one of these five- or even ten-year people and set them out in a county in Oklahoma or West Texas and told them to look for prospects, they might not know where to start.” “If people are viewed largely as technicians to guide a drill bit in a horizontal hole, as opposed to explorers,” he said it could have a long-term adverse effect on the industry’s ability to find oil when the demand returns. (AAPG Explorer, June 2017)
Considering the loss of skills and technology in the industry, it is important that leaders in Oil & Gas companies find the right partners to access the technology (software, services, and training) needed to resume deepwater activities.
It turns out that Emerson’s Paradigm exploration product line developed in deepwater and subsalt / presalt, and is uniquely well-suited to those environments. While other technology companies stopped investing during the downturn, research & development continued on the Paradigm software products, and Emerson has been releasing new products and services regularly. Also, the training curriculum has continued to advance. Some of the tools which can help in deepwater include:
What do you think? Do you want to learn more or request a demo about deepwater? Please go to our Deepwater Asset Challenges page, then click on the Contact Us link on the right, and let us know how to get in touch with you.
Also, register for the Oct 1-5 Emerson Exchange conference in San Antonio, Texas and meet our Paradigm software experts face to face and discuss your deepwater projects.
The post Is Your Company Ready to Start Exploring Deepwater Again? appeared first on the Emerson Automation Experts blog.