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Deepwater emerges from its slumber

The post-2014 investment decline can be fully arrested if processes are standardised and regulators become more responsive

A decline in deepwater investment could be halted through a combination of cost control, the standardisation of requirements, and local regulators becoming more flexible, delegates heard at the annual meeting of energy technology heavyweight Baker Hughes in Florence on Tuesday.

The long development times—and therefore delay in return on investment—associated with deepwater projects have become particularly problematic since the oil price crash of 2014, but industry leaders are applying innovative approaches with the aim of overcome financial barriers.

"We need to be able to develop fields in deepwater much faster than we have done, and to be much more proactive than we have been in the past," says Bruno Chabas, CEO of Dutch offshore systems and services provider SBM Offshore.

Development times can be slashed, as his firm’s development of a May 2015 discovery in Guyana, working alongside operator ExxonMobil, demonstrates. While it usually takes ten years from discovery to first oil, says Chabas, this project took less than five years. “That is one way to make offshore oil ‘great again’.”

Regulatory simplification

As well as streamlining technical development, simplifying regulatory processes can transform the economics of a prospect.

Angolan oil production had been declining for several years before politicians and regulators came to recognise that the industry was missing out on the investment it needed to replenish production due to overly demanding conditions. “It all boils down to flexibility … and having a more streamlined approval process,” says Belarmino Chitangueleca, executive board member of Angola’s recently constituted National Petroleum and Gas Agency (ANPG).

“You can call it diplomacy. I just call it being a good partner with everybody that you are dealing with” Dave Stover, chairman and CEO, Noble Energy

Many projects in the country had been close to FID but ultimately “failed to take off” due to front-end loading combined with a lack of flexibility around regulatory terms. “The government of Angola was losing efficiency … in dealing with many separate processes and many standards for structuring the oil and gas sector … New restructured legislation is now in place, so we can talk about the development of marginal fields,” says Chitangueleca. “Now we have the result of new legislation, we have examples of at least three projects already on board.”

Complex relations

The East Med Leviathan offshore discovery was made in one of the most complex regions for international relations. “We just brought on our Leviathan project offshore-Israel, which is supplying gas not only to Israel but to Jordan and Egypt,” says Dave Stover, chairman and CEO of Noble Energy.

While there were obvious mutual interests at stake, negotiations between Israel and its neighbours required openness and careful management. “We had to make sure the customers and business relationships were in place and the governments’ support on all sides were in place. That is an additional level of complexity.”

The key, says Stover, is to “get everybody’s objectives, needs, everything on the table upfront … [so you know]what you have to manoeuvre and how you are going to handle things … and work from the beginning to make sure everything is in place so that you are not running into obstacles, so you move through and get to the end”.

“You can call it diplomacy,” he says. “I just call it being a good partner with everybody that you are dealing with.”

Local difficulty

Local content provisions are another factor that can add costs as well as delays. “It is always going to be there,” says SBM Offshore’s Chabas. “It makes sense that the people of the country want to get wealth—not just a dividend but jobs—out of their resources.”

However, deepwater projects lag on average one year behind their original schedules, he warns, and this fundamentally alters the economics of a field’s development—perhaps to the point where they do not proceed. Since 2014 his firm has focused on trying to standardise engagement with local authorities.

“How do you bring on local content to a greenfield site and bring value to everybody? The only way is standardisation and engagement with the client upfront… [but] it is easier said than done.”

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