Deepwater projects hit by deferrals

Continued low oil prices negatively impacts deepwater projects

In the last six months of 2015 an additional 22 major projects and seven billion barrels of oil equivalent of commercial reserves have been deferred, on top of the 46 developments and 20 billion barrels of oil of reserves identified, according to new analysis from Wood Mackenzie.

The company concluded that oil was the most impacted sector with deferred liquid volumes up 44%, versus 24% for gas.

Angus Rodger, principal analyst of upstream research for Wood Mackenzie, said: “The impact of lower oil prices on company plans has been brutal. What began in late-2014 as a haircut to discretionary spend on exploration and pre-development projects has become a full surgical operation to cut out all non-essential operational and capital expenditure.

"Tumbling prices and reduced budgets have forced companies to review and delay Final Investment Decisions (FID) on planned projects, to re-consider the most cost-effective path to commerciality and free-up the capital just to survive at low prices."

Wood Mackenzie’s report, Pre-FID project deferral update: deepwater hit hardest, identified 68 large projects globally that have had FID delayed due to the fall in oil prices since the oil price crash in 2014 to the end of 2015. The list has grown by more than a third in the past six months, as more and more projects are deferred through the down-cycle.

Rodger added: "For all 68 projects there are multiple elements contributing to delay. Price is rarely the only factor slowing down FID - but it has exerted the strongest influence.

“One reason we are seeing a growing list of delayed projects is cost deflation – or to be more accurate the need for costs to fall more to stimulate investment."

The analysis shows that this is where deepwater has made the least gains.

Rodger said: "The biggest jump in pre-FID delayed projects over the last six months was in the deepwater, rising from 17 to 29, where costs have only fallen by around 10% despite the global crash in rig day-rates. Despite the size of these fields, the combination of insufficient cost deflation and significant upfront capital spend has discouraged companies from greenfield investment in the sector."