Industry shifts to short-cycle projects

Sept. 14, 2017
The oil and gas industry is investing increasing proportions of its overall capital spend to low-risk, short-cycle developments.
David Paganie Houston

The oil and gas industry is investing increasing proportions of its overall capital spend to low-risk, short-cycle developments. The results of the recent Gulf of Mexico Lease Sale 249 supports this trend. Investors targeted areas near existing infrastructure with a majority of bids close to existing hubs and appraised developments, according to William Turner, senior research analyst at Wood Mackenzie.

However, bids from Chevron, Shell, and Total near pre-FID discoveries, Guadalupe and North Platte, were a vote of confidence in higher-risk, standalone developments, he said. Turner also pointed out that the 76 blocks that received 98% of the high bid value ($118 million) were in deepwater (400+ m or 1,312 ft depth).

The highest bid came from Total E&P USA, for Garden Banks block 1003 at $12.1 million. The block is adjacent to North Platte, Cobalt’s appraised discovery. The lease sale attracted 99 bids from 27 participating companies, with high bids totaling $121 million.

Meanwhile, an assessment of GoM floating production capacity would seem to suggest that operators could capitalize on the favorable economics of short-cycle projects. Inside this issue, Mark J. Kaiser, Center for Energy Studies, Louisiana State University; and Mingming Liu, Academy of Chinese Energy Strategy, evaluate the oil and gas nameplate processing capacity and capacity-reserves (CR) ratio of all the floating production units in the deepwater GoM.

The authors find that the average nameplate processing capacity for the floater inventory is 77 Mb/d of oil and 150 MMcf/d of natural gas, or 102 Mboe/d with a standard deviation of 56 Mboe/d. The annual average nameplate capacity is 40 MMboe with a standard deviation of 22 MMboe. The average CR ratio for floaters circa 2016 is 0.32 with a standard deviation of 0.31. About 75% of the floaters have CR ratios less than 0.4 with the majority ranging between 0.10 and 0.30.

The full assessment by Kaiser and Liu beginshere.

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