Baku, Azerbaijan, Jan. 14
By Aygun Badalova - Trend:
Additional 22 major projects and seven billion barrels of oil equivalent (boe) of commercial reserves have been deferred in the last six months of 2015 as a result of continuous low oil prices - on top of the 46 developments and 20 billion boe of reserves identified previously, said the Wood Mackenzie's analysis.
Deepwater projects have been hit hardest, accounting for over half of the total, as companies are forced to rework projects with high breakevens, large capital requirements and high costs, according to the analysis, obtained by Trend.
“Tumbling prices and reduced budgets have forced companies to review and delay Final Investment Decisions (FID) on planned projects, to re-consider the most cost-effective path to commerciality and free-up the capital just to survive at low prices,” Angus Rodger, upstream research analyst for Wood Mackenzie said.
Companies are having to adjust investment strategies to the risk of sustained low prices and this means tougher screening criteria for pre-FID projects, according to Tom Ellacott, vice president of corporate Analysis for Wood Mackenzie.
“We believe that most companies will now be looking for these developments to hit economic hurdle rates at around $60 a barrel,” Ellacott said.
“Tougher capital allocation criteria will give companies the framework to make difficult decisions about restructuring portfolios, optimising pre-FID projects and capturing the full benefits of cost deflation. If a sector or country cannot meet new investment thresholds and compete for capital, operators are now more likely to choose divestment over warehousing a stranded resource,” he said.
By 2021 deferred volumes will reach 1.5 million barrels per day, rising sharply to 2.9 million barrels per day by 2025, according to Rodger.
Wood Mackenzie's analysis suggests that Canada, Angola, Kazakhstan, Nigeria, Norway and the US are among the countries with the largest inventory of delayed oil projects. This includes oil sands, onshore, shallow-water and deepwater assets in both greenfield and incremental developments.
With oil prices recently falling to their lowest level since 2004, oil and gas companies will be forced to go into survival mode in 2016, according to Ellacott.
“Further project delays and cuts to discretionary investment are highly likely. That said, companies are being forced to re-evaluate how they can profitably develop large, high-cost conventional resources at low prices,” he said.
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