Offshore project sanctioning in 2019 could soon eclipse 2014
Overall offshore project sanctioning in 2019 has surpassed the $50bn mark, driven by Saudi Aramco’s recently announced $18bn worth of project commitments associated with the Marjan and Berri expansion projects. This is yet another signal that the offshore industry has turned a corner and can reach a potential project commitment total of $123bn in 2019, surpassing commitments in 2014 of $78bn, according to Rystad Energy.
The Marjan Expansion alone is the largest field to be sanctioned globally since 2014. 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. Once that happens, four of the top 10 offshore projects since 2014 will have been sanctioned during this calendar year. Previously, the $4.7bn Liza Phase 2 project was the largest offshore field to be sanctioned this year.
‘With offshore free cash flows at nearly record highs, E&P companies are betting big on new projects. Offshore project sanctioning in 2019 looks ready to reach heights not seen since $100/b oil,’ says Matthew Fitzsimmons, Vice President of Oilfield Service Research at Rystad Energy.
Back in 2014, 74 offshore projects were sanctioned for nearly $78bn. Total alone was responsible for $24bn of these projects, 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 $37bn of offshore projects sanctioned.
For the offshore industry to reach $123bn of potential project commitments in 2019, over $86bn of 2H2019 onshore and offshore commitments will require an oil price of at least $40/b to break even, says Rystad Energy. The company cautions that 13% of the potential $123bn to be committed for offshore projects has a break-even price over $60/b. That means $16bn worth of projects are at high risk of not receiving funding at the time of their sanctioning decisions this year.
Figure 1: Top 10 offshore projects sanctioned from 2014–2019
Source: Rystad Energy