Offshore spending is expected to increase this year for the first time in five years, and then grow by an estimated 7% CAGR through 2025. All phases of offshore upstream will improve during the forecast period, but the greatest percentage increase will be in greenfield project sanctioning. These are some of the conclusions of Rystad Energy’s global offshore E&P analysis and forecast, inside this issue.
Rystad attributes this expected boost in spending to the offshore transformation that is improving project economics. In 2018, public E&P companies reported a record $105 billion in free cash flow from offshore. This is up by 100% year-over-year, and from the previous peak of about $95 billion in 2011, according to Rystad. Some of the cash has been used for debt management and dividends, but a large share will be allocated to investments, Rystad observes.
For this year, $125 billion is at stake for new projects, and Saudi Aramco, Petrobras, and ExxonMobil are expected to be the biggest spenders. ExxonMobil could sanction over $15 billion of offshore work, including two phases of the Greater Liza project (Liza Phase 2 and Payara) offshore Guyana. ExxonMobil’s Liza partner Hess has been promoting the economics of the project to illustrate that offshore is competitive with the premier US shale plays. In a recent investor presentation, Hess compared Liza Phase 1 and a development in the Permian with the same peak production of 120 Mboe/d. The slide shows that not only is the total development capex of Liza Phase 1 lower at $3.7 billion (eight production wells) versus $12.8 billion (1,500 production wells), but the cycle time to peak production is also shorter at just three years compared to more than 10 years for the Permian development.