Deepwater drilling may decline up to 50% in 1999

Feb. 1, 1999
Deepwater exploration and appraisal drilling off West Africa could dip to 50% of 1998 levels, according to a new forecast by analysts Wood Mackenzie. Wildcat wells in these waters cost from $10-25 million. Although rig rates, even for this region, may decline, investment on this scale will prove harder to justify as the industry seeks to cut exploration budgets. As a further response to low oil prices, Wood Mackenzie foresees other trends in deepwater West Africa:

Deepwater exploration and appraisal drilling off West Africa could dip to 50% of 1998 levels, according to a new forecast by analysts Wood Mackenzie. Wildcat wells in these waters cost from $10-25 million.

Although rig rates, even for this region, may decline, investment on this scale will prove harder to justify as the industry seeks to cut exploration budgets. As a further response to low oil prices, Wood Mackenzie foresees other trends in deepwater West Africa:

Exploration acreage acquisition costs, particularly through signature bonuses (thought to have hit $400 million off Angola of late) should drop sharply. This also reflects the frontier nature of much of the remaining unlicensed acreage
  • Companies should gain more leeway in delaying commitment wells through negotiating licence extensions
  • Deepwater license relinquishments, virtually unprecedented off Africa, will become more frequent as a way of evading further work commitments. That could open the way for others to target relinquished acreage as a way of building an exploration position.
  • Analysts say the slowdown was already in evidence in the second half of 1998, when 33% fewer deeper West Africa wildcats were drilled than over the first half.

    This does not mean that deepwater West Africa has already peaked as an exploration province. Discovered oil reserves have been accumulating at around 2 billion bbl a year since mid-1995.

    However, of the 20-plus deepwater fields discovered, only Girassol and Kuito have gone forward to development. Of the rest, Elf-operated Dalia in Angola block 17 is the largest, at around 1 billion bbl, while the majority range from 100-500 million bbl.

    Wood Mackenzie predicts a general "wait and see" mood towards these undeveloped discoveries. Appraisal will continue, but the projects will essentially be on hold pending a breakthrough in cost-reduction technology or enforced relinquishment of licences. That means lower near-term investment levels, as with exploration.

    Although there have been no big asset deals to date regarding deepwater West Africa assets, more transactions can be expected, with niche opportunities for some of the smaller fields attracting companies with similar experience in the Gulf of Mexico.

    Overall oil production off West Africa should continue to rise, say the analysts, regardless of oil prices, reaching 4.5 million b/d by 2001, including output from Girassol and Kuito.

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