More bad news offshore

Two recent reports from Wood Mackenzie (Wood Mac) are in the latter camp.

The first report discusses the initial round of Mexico’s licensing sale in the Gulf of Mexico, which resulted in the awarding of only two of the 14 exploration blocks up for bid in the shallow waters of the Bay of Campeche. The Mexican government had expected to award four to six blocks. There were four unsuccessful bids for other blocks, three of which failed to meet the government’s minimum acceptable profit share. While the sale was disappointing, Wood Mac noted that it is a buyer’s market for new exploration leases, which does not favor secret minimum bid requirements. If Mexico adjusts the minimums, analysts believe a second round of lease sales might prove more successful.

Adding to the poor Mexican lease sale is a growing list of deepwater projects that have been put on hold due to low oil prices. Wood Mac analyst Angus Rogers predicted in late July that we “may be able to count the number of major upstream projects that reach a Final Investment Decision (FID, or sanction and funding) during the year on one hand.” He noted that the fall in oil prices and the “dismantling” of 2015 budgets has, by midyear, “already resulted in over 45 major project FID deferrals” encompassing an estimated 20 billion bbls. of reserves. More than half of the reserves are in deepwater, with another 11% to 12% in shallow water. Rogers estimates that the majority of these projects will be rescheduled to 2019–2023, although they could be pushed back further if conditions do not improve.

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