Global offshore project commitments set for record in coming years

Global offshore project commitments are expected to not only recover going forward, but their number is also set to reach a new record in the five-year period towards 2025, cumulatively almost 600 projects, a Rystad Energy report shows. Deepwater commitments will enjoy the largest growth as their cost has now become much more competitive against greenfield continental shelf reserves.

For the purpose of the analysis, the report defined that a project is ‘committed’ when more than 25% of its overall greenfield capex is awarded through contracts.

Looking at five-year intervals, total offshore project commitments declined in the period 2016–2020 to 355 projects, down from 478 in the period 2011–2015. From the beginning of 2021 and up until the end of 2025, Rystad Energy’s forecast is for 592 commitments, with growth across all water depth levels – shallow water (0–125 metres), deepwater (125–1,500 metres) and ultra-deepwater (beyond 1,500 metres).

Although shallow water commitments will take the largest share of the total offshore project pie, rising to 356 from just 206 in the last five years, the increase is more modest – about 10% – compared to the 2011–2015 count of 323 projects. The most impressive growth is that of deepwater commitments, with the number of projects rising to 181, from 106 in 2016–2020 and 115 in the five years before that.

Ultra-deepwater commitments will also tick up, but not by similar margins, as costs still bite. Rystad Energy expects about 55 projects from this year until 2025, up from 43 in the previous five years.

‘The growth in commitments will stimulate rising demand for floating production, storage and offloading (FPSO) vessels as well as subsea tie-backs. The search for large new fields in deep and remote waters became much more economically viable after day rates for drilling rigs and offshore supply vessels fell in the wake of the oil price crash in 2014 and 2015. This offers significant support for companies interested in deepwater,’ comments Rajiv Chandrasekhar, Energy Service Analyst at Rystad Energy.

Rystad Energy’s latest offshore cost benchmarking report shows that the difference in the cost of greenfield shelf reserves compared to deepwater has fallen dramatically from the highs seen in 2014 – from over $5/boe to only around $1/boe in 2020.

Due to the expected growth in E&P activity over the next five years, the number of new offshore facilities is set to increase, meaning floaters and subsea tie-backs are also projected to rise. E&Ps are likely to prefer leased FPSOs over owned units – based on both reported data and the assumptions made by operators. The market analyst forecasts a 50% rise in the number of owned FPSOs expected to be used on upcoming projects till 2025.

Subsea tie-backs are significantly less capital-intensive compared to fixed and floater technologies, and they also facilitate quicker turnaround times from the start of field development to first oil. Furthermore, the large number of pre-existing fixed facilities has made it progressively easier to opt for subsea production systems that can be tied back to these platforms. Even in shallow waters below 125 metres, subsea and floater commitments will likely see their market share rise considerably over the next five years, although fixed platforms will still remain the dominant solution for shelf developments, suggests the study.

In terms of greenfield expenditure, Rystad Energy expects offshore project commitments in 2021–2025 to be worth more than $480bn, eclipsing the 2016–2020 tally of around $320bn by 50%. However, this is still well off the pace set in the 2011–2015 period, when around $673bn worth of commitments were made.

Rystad Energy expects ultra-deepwater activity to be primarily concentrated in South America, with over 50% of the total committed value, while the Middle East is likely to lead shelf developments with 40% of the total value. Deepwater investments are forecast to be less dependent on any particular region, with a quarter of greenfield expenditure expected in Europe.

Figure 1: Global offshore project commitments, split by five-year periods
Source: Rystad Energy