The two regions with the largest exploration success over the last decade are South America and Africa. The sub-salt discoveries in Brazil and the gas discoveries in offshore Mozambique and Tanzania were the key drivers for this success. At the time of their discovery, these finds were commercial and expected to generate high activity and production growth in the medium term.
The figure shows the average real Brent breakeven oil price for different sources of new production. The breakeven price is the oil price that gives a net present value of zero when all future costs and governments take are included. By looking at the chart, few of the resources are commercial with an oil price lower than US$50-60 per barrel. To improve the economics in the discoveries, both the E&P and oilfield service companies will have to try to be more efficient and come up with new technology.
In addition to the economics of the discoveries, other factors are making it difficult to develop the new volumes. In Brazil the combination of strict local content requirements, scarcity of human capital, cost inflation, corruption, and the fact that Petrobras is the sole operator for ‘strategic’ assets has limited the development. This problem became visible when Petrobras recently revived down its 2020 production goal by 1.5 MMbopd.
The development of LNG projects in East Africa has also slowed down; here new fiscal regimes in Tanzania have contributed to uncertainty around the projects, and in Mozambique operators are struggling to come up with joint development solutions.
With the current low commodity prices, the sanctioning of new projects in Africa and South America will be challenging. The focus will be on cost saving and efficiency gain to make these fields more attractive. Rystad Energy believes that in the long term commodity prices have to come up. When they do these regions will be well positioned to grow due to the recent exploration success.