Deep-water project costs down by a fifth, Wood Mac says

The costs of expensive deep-water oil projects have shrunk by a fifth on average since crude prices collapsed in the summer of 2014, Wood Mackenzie said in a recent report.

The energy research firm believes unapproved deep-water projects that could reach some 5 billion barrels of oil would yield investment returns at $50 a barrel oil.

That has made the prospect of launching these offshore projects more palatable even with low oil prices and competition for resources from U.S. shale plays. The cost reductions come from lower rig prices and moves to redesign projects and pump higher quantities of oil from wells, Wood Mackenzie said.

BP, Royal Dutch Shell and Noble Energy have launched three major deep-water projects this year, and the research firm expects to see an increase in project approvals this year.

“We are at last beginning to see the first signs of recovery in deep-water,” largely because of cost reductions, said Angus Rodger, an analyst at Wood Mackenzie.

Some oil companies have cut the break-even costs of projects in the Gulf of Mexico from $70 a barrel to $50 a barrel oil, Rodger added.

“We are now seeing scaled-down projects emerge with less wells, more subsea tie-backs, and reduced facilities and capabilities,” he said. “All this translates into lower break-evens.”