Global oil-market analysis from research and consultancy firm Wood Mackenzie Ltd. indicates that 70% of new drilling in US tight oil plays and pre-final investment decision (FID) conventional oil projects are commercial at Brent crude oil prices below $60/bbl.
Just 50% of those plays were commercial a year ago. WoodMac says that these “projects are crucial to offset global demand growth and declines from existing production,” noting that some 13 million b/d of new supply could be developed globally from both tight oil and conventional projects by 2025.
Global breakeven costs for tight oil and conventional developments have dropped $19/bbl to the current weighted average of $51/bbl since a peak in 2014 and $8/bbl over the past 12 months.
Of the 13 million b/d, 9 million b/d is commercial at Brent fetching $60/bbl, which is better than any point since 2009 and 1.5 million b/d more than a year ago. Most of the 9 million b/d is US tight oil, reflecting productivity improvements and cost deflation in the key growth plays.
WoodMac says the “big winners” as a result of these improvements are incumbent operators in the major tight oil growth plays such as the Midcontinent and Permian basin, including US independents EOG Resources Inc., Pioneer Natural Resources Co., Continental Resources Inc., and Apache Corp.; and majors ExxonMobil Corp. and Chevron Corp.
“In contrast, the majority of conventional pre-FID projects are not commercial at $60/bbl,” said Harry Paton, WoodMac research analyst. “These projects will be needed to meet demand growth into the next decade but higher prices or significant additional cost reductions are required for many to be commercial. If prices remain at around $50/bbl, then many major conventional projects are at risk of deferral or cancellation.”
WoodMac's breakeven analysis shows that deepwater projects are highest on the cost curve despite some progress on cost deflation. Deepwater Angola and Nigeria projects have already suffered cancellations and more are at risk. Brazil in contrast holds its own in the middle of the cost curve with a weighted average breakeven of $50/bbl due to world-class projects of scale such as Libra (OGJ Online, July 12, 2016).