Offshore Has Turned a Corner: Rystad

Offshore project sanctioning could hit a total of $123bn in 2019, consultancy Rystad Energy estimated July 18.

Should financing commitments reach that level it would represent a record in recent years, outstripping the $78bn approved in 2014. “This is yet another signal that the offshore industry has turned a corner,” Rystad said.

Saudi Aramco’s recent announcement of $18bn worth of project commitments associated with the Marjan and Berri expansion projects took the year to date total past $50bn. 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 off Mozambique are also expected to be sanctioned this year.

“With offshore free cash flows at nearly record highs, E&P’s are betting big on new projects,” said Rystad’s vice president of oilfield service research Matthew Fitzsimmons. “Offshore project sanctioning in 2019 looks ready to reach heights not seen since the $100 barrel of oil.”

Seventy four offshore projects were sanctioned with a commitment of $78bn in 2014. However, the collapse of oil prices saw sanctioning bottom out at just $37bn in 2016.

Despite Rystad’s enthusiasm, the consultancy admits that for the offshore industry to reach $123bn of potential project commitments in 2019, over $86bn of onshore and offshore commitments in the second half of the year will require an oil price of at least $40 per barrel to breakeven.

A further $16bn worth have a breakeven price of $60, and are “at high risk of not receiving funding at the time of their sanctioning decisions this year”.