Are higher oil prices affecting offshore operators?

So far, June is bringing welcome news to the offshore energy industry. A successful bidding round in Brazil for ExxonMobil and data showing the highest rig count offshore Africa in two years suggest operators are finally responding to higher oil prices.

Brent oil prices touching $80 bbl. may have been the catalyst, but it is part of the process for restoring confidence about the future for oil prices. Certainly, the efforts of producers to lower breakeven operating costs has helped. But the prospect of healthy oil prices over a three- to 10-year timeframe, when offshore projects will be starting up, is key to why operators are restarting offshore efforts.

While the Gulf of Mexico has seen approvals of several deepwater field development projects in recent months, with even ExxonMobil getting into the deepwater swing of things with a new drillship contract award, the current news has an international flavor. Last week, ExxonMobil announced it was successful in securing a lease for the Uirapuru exploration block in Brazil’s fourth pre-salt bid round. That adds a net 88,900 acres to ExxonMobil’s holdings, and the company will operate the block. At the same time, ExxonMobil said it plans to conduct 3-D seismic on over 7,500 square miles of Brazilian acreage, including all the blocks acquired in 2017. Work is already underway on two blocks in the Northern Campos basin, with work underway to secure the necessary approvals to commence drilling activities there.

ExxonMobil also announced that it has completed the purchase of half of operator Equinor’s (formerly Statoil) interest in the Carcara field. Drilling began in late April on the field reportedly containing more than an estimated two billion barrels of recoverable high-quality oil. Development plans are now underway to bring the field into production by 2023.

For behemoths like ExxonMobil, loosening the purse strings is always part of strategic initiatives. The company just announced plans to exit its 35% holding in an estimated 23 trillion cu. ft. natural gas field in deepwater Block 2 off Tanzania. This often-delayed project has slipped in priorities since the company acquired a 25% interest in neighboring Mozambique’s offshore Area 4 development, operated by ENI, and which reportedly contains 85 Tcf of natural gas, making it one of the world’s largest gas discoveries in recent years.

The other good news was Baker Hughes‘ May worldwide drilling rig statistics that show Africa’s offshore count had reached a two-year high of 17 active rigs, following a record low of only nine rigs in 2017. As impressive as this statistic is, the even better news is that operators have contracted three additional rigs for work to commence in late 2018 or early 2019.

Animal spirits, in response to higher oil prices and increased confidence for the future, are coming out of hibernation. It has taken a while for it to happen. The good news is they will likely not return to snoozing anytime soon.

 

 

About the author

G. Allen Brooks

G. Allen Brooks is a 40-year veteran of the energy and investment industries, serving as an energy securities analyst, an oilfield service company manager, a consultant to energy company managements and a board member of several oilfield service companies. He is the author of the highly regarded energy newsletter “Musings From the Oil Patch” that interprets trends within all sectors of the energy business.

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