OTC Commentary: Collaboration could help deepwater stay competitive

By Stephen P. Thurston

As thousands of people descend on Houston next week for the Offshore Technology Conference 2017, one of the questions on their minds will be: Can complex, deepwater projects compete for capital in a world where shale offers lower development costs and shorter production cycles?

The answer is yes. Even in these times when shale and tight rock resources are grabbing headlines as the lowest-cost option for new oil production in the United States, deepwater resources still represent significant opportunity.

We know deepwater resources are prolific and that we have the technology to develop them safely and responsibly. But to remain relevant in a highly competitive environment where lower oil prices are putting pressure on firms to cut costs and find efficiencies, the deepwater industry should focus on another key factor in the equation: returns.
Deepwater production can be profitable in the current oil price climate. But there are steps we must take as an industry to ensure the cost per barrel declines.

At the top of the list is collaboration. Where intellectual property is not a competitive advantage, there is a huge opportunity to improve how we work as an industry to monetize resources that will benefit multiple companies. In discussions with many of our peers, for example, we know that collaboration in research and development of deepwater technologies and solutions can be cumbersome, administratively overburdened, costly, and long-lead. We need to simplify.

Second, we need to get on the same page about standardization. The oil and gas industry can learn from the car and aircraft-manufacturing sectors that have driven costs down by adopting standardized components and systems. Where appropriate, we should simplify and agree on common systems and methods, leaving aside the idea that every project needs a unique solution. We don’t need to re-invent the wheel at every turn.

Third, we must remember that, as an industry, we are bound to rise or fall together. If the cost of goods and services squeezes operator margins too much, there won’t be any projects for anyone. On the other hand, operators need to understand what suppliers require to remain viable themselves.

And we all should work closely with host governments to ensure that regulations and fiscal regimes are meeting their necessary objectives while still allowing for project success and a reasonable rate of return.

Around the world, peoples’ standard of living is improving as more and more enter the global middle class. But to continue this trend, and to enable future innovation and progress, the world will need reliable, affordable energy from all available sources, including deepwater.

While substantial, shale resources alone will be insufficient to meet demand. U.S. shale supplies only about a quarter of the 19 million barrels of oil per day consumed in the United States and a mere fraction of the 97 million bbl/d global demand.

The deepwater industry needs to build on the lessons we have learned and realize the value of collaboration. Old, established paradigms may no longer apply.

Stephen P. Thurston is vice president of Deepwater Exploration and Projects Business Unit Chevron North America Exploration and Production Co.