OSLO, Norway – The offshore industry has turned a corner and can reach a potential project commitment total of $123 billion in 2019, exceeding commitments in 2014 of $78 billion, according to Rystad Energy.
Overall offshore project sanctioning in 2019 has surpassed the $50 billion mark, driven by Saudi Aramco’s recently announced $18 billion worth of project commitments associated with the Marjan and Berri expansion projects.
The Marjan expansion alone is the largest field to be sanctioned globally since 2014, according to the analyst.
Later this year, the Hail and Ghasha sour gas projects, Lula’s Oeste FPSO in Brazil, and the feed gas systems to develop the Atum and Golfinho assets on the Area 1 LNG project are also expected to be sanctioned, according to the analyst. Once that happens, four of the top 10 offshore projects since 2014 will have been sanctioned during this calendar year. Previously, the $4.7-billion Liza Phase 2 project was the largest offshore field to be sanctioned this year.
Matthew Fitzsimmons, vice president of Oilfield Service Research at Rystad Energy, said: “With offshore free cash flows at nearly record highs, E&P’s are betting big on new projects. Offshore project sanctioning in 2019 looks ready to reach heights not seen since the $100 barrel of oil.”
In 2014, 74 offshore projects were sanctioned for nearly $78 billion. Total alone was responsible for $24 billion of these projects by growing its portfolios in West Africa and Brazil. However, oil prices dropped, and operators thought twice about sanctioning new work. In 2016, sanctioning bottomed-out, with only $37 billion of offshore projects sanctioned.
For the offshore industry to reach $123 billion of potential project commitments this year, more than $86 billion of 2H 2019 onshore and offshore commitments will require an oil price of at least $40/bbl to breakeven.
The analyst cautioned that 15% of the potential $123 billion to be committed for offshore projects has a breakeven price more than $60/bbl. While that number has decreased to 13% since the time of publishing, it still means that $16 billion worth of projects are at high risk of not receiving funding at the time of their sanctioning decisions this year.