Deepwater production is expected to increase by more than 60% between 2022 and 2030, rising from 6% to 8% of overall upstream production. Ultra-deepwater production – from depths of 5,000 feet and above is seeing the fastest growth – by 2024 it will account for more than half of all deepwater production.
Deepwater is the fastest growing upstream oil and gas resource theme. From just 300,000 barrels of oil equivalent per day (boe/d) in 1990, production is expected to reach 10.4 million boe/d in 2022. By the end of the decade, this figure is expected to exceed 17 million boe/d, suggested Wood Mackenzie. .
According to Woodmac, Brazil remains the leading deepwater producer, accounting for around 30% of current global capacity and will continue to grow. Guyana, the largest new entrant, will produce one million boe/d within five years. A total of 14 other countries will contribute to the deep water supply package in the coming years.
Despite the diversification of sources and participating companies, control of major deepwater projects is in the hands of a relatively small number of companies. Just eight companies account for 65% of deepwater production and 67% of the remaining project value.
Petrobras and the seven majors dominate deepwater production, operating 22 of the top 25 deepwater assets. Petrobras’ deepwater portfolio is about twice as large as that of its closest counterpart, Shell, which stands out among the majors in terms of production and cash flow. ExxonMobil and TotalEnergies show the highest growth rates this decade.
Woodmac said that generally only the best underground areas become commercial in such deep waters. Deepwater basins therefore tend to be hyperproductive, recovering huge volumes of oil and gas from each well. This results in high economic returns and low Scope 1 and 2 emissions intensities compared to most other oil and gas resource themes.
But there is still room for improvement in emissions. The majors are focused on reducing deepwater emissions by reducing flaring and methane leaks, optimizing operations on existing rigs and, where possible, electrifying facilities. Brazil’s scale means it is the largest absolute emitter and its performance depends on Petrobras’ decarbonization aspirations.
There is a strong pipeline of pre-FID projects, offering plenty of investment opportunities across a range of jurisdictions. The average return on investment in our global database of deepwater development projects is 24%, at $60/bbl Brent, but the bookends are way off. The best returns are generated from smaller oil fields that can be connected to nearby infrastructure. The lowest are long lead gas supply projects.
Supply chain constraints are a concern
Service companies have made huge fleet reductions to key equipment such as floating platforms and production systems since the peaks of the 2010s. With increasing activity levels, the availability of equipment and services will be a constraint.
Cost inflation will continue to jeopardize project economics as higher utilization combines with higher commodity prices. In some regions, deep water rig costs have doubled from 2021 daily rates. It has hit global hotspots the hardest such as the US GoM and Brazil, Gato do Mato in the pre-salt Brazilian, for example, will be delayed for up to two years due to rising costs.
The constraints of the global deepwater supply chain will increase, over time, lead times and unit costs in all areas. Participants pushed operational efficiencies such as reduced drilling days and modularization of facilities to offset some of the impact, but hard-won efficiencies from previous downturns are starting to reverse.
To contact the author, send an e-mail to [email protected]