Offshore oil closing in on the shale industry
An executive at Chevron has indicated that the offshore crude oil extraction and deepwater industries are closing in on the shale market. Referring to the improvements in production technologies and subsequent cost reductions, the senior executive suggested the offshore and deepwater markets are becoming more competitive.
Chevron is currently developing pump networks on the ocean sea floor and connecting new wells located on existing installed platforms. Chevron highlight that these systems will significantly reduce operating costs and allow deepwater oil to be even more competitive with the shale industry. This belief by Chevron is being echoed by other oil majors including Transocean. The chief executive of Transocean has indicated that most of the existing deepwater oil projects located in the Gulf of Mexico have a break-even figure in the range of $40-45 USD a barrel.
During the period of downturn, deepwater exploration was traditionally viewed as the costlier alternative to conventional onshore and shale activities. As a result, investment into deepwater exploration was reduced significantly. Prices are now recovering and it seems that the offshore industry is experiencing a revival, despite the rapid development of the shale industry.
A 2017 report by Wood Mackenzie indicated that offshore drilling costs were decreasing even though oil prices remained relatively low. Industry experts suggest that this is a sign that the offshore market is becoming more efficient and with new technology, costs are being maintained more effectively. The report indicated that within 2018 they believe some offshore oil projects would be capable of breaking even if crude oil was trading at $50 a barrel.
A report last month by Westwood Energy suggested that deepwater projects were becoming more competitive due to the costs of shale drillers rising, driving the market into a shortage, causing frac sand costs higher.
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