When the oil price plummeted back in 2014, there were many who predicted it signalled the end of deepwater exploration: the economics just would not allow it, these expensive wells needed an oil price nearer $100 a barrel than $50, it was said. Attention turned to shales and to getting as much as possible from existing portfolios in rather more accessible locations.
But in the background, it seems there was a lot going on. About a year ago I heard a representative from one of the supermajors confidently asserting that they had refined their deepwater drilling through modern technologies, lower rig prices and increased efficiencies, and now believed they could make a profit on deepwater exploration with an oil price of $40 or less. All of a sudden, deepwater exploration was back in the picture. At the Africa Oil Week in October there were a number of talks focusing on the topic, including an entire session entitled ‘Is there a future for deepwater exploration?’ Several companies said they believed that deepwater drilling was now quite feasible with a breakeven full-cycle oil price of $30–$50 per barrel, making it competitive with shale oil. True, the lead time from discovery to first oil is a lot longer for a deepwater discovery, but the field life is longer too, without the steep decline rates common in unconventional wells.
A return to deepwater will not be that easy. Only the most competitive deepwater projects will move forward, but terms have improved over the last few years, with cheaper entry, more flexibility and easier access to funds, on top of major technological advances.
If any further evidence of this upsurge in interest in deepwater drilling was needed, it was given to us by the hugely increased level of interest in the recent Brazil pre-salt licensing round, the first where foreign companies were able to bid as operators since the vast oil reserves beneath the salt were discovered. Six of the eight well-contested, high potential deepwater blocks were awarded, with supermajors like Shell, ExxonMobil and Total among the winners. They obviously believe that deepwater exploration is back on the table.