U.S. shale, rather than deepwater, is now the lowest cost option for future oil production, Wood Mackenzie said in a report. This means that U.S. shale producers will likely be at a competitive advantage in coming years, which demonstrates the success of these companies in cutting production costs and achieving efficiency gains.
Around 60% of the oil production that is commercially viable at $60/bbl (Brent) is in U.S. shale, and only around 20% is in deepwater, Wood Mackenzie said, as reported by the Financial Times. Companies operating in higher-cost regions such the North Sea and in deepwater offshore West Africa will have to reduce costs or see falling production.
The quantity of large projects green-lighted by O&G firms averaged 40 per year between 2007 and 2013, but fell to only 8 in 2015, FT quoted Wood Mackenzie's Angus Rodger as saying. He expects only about 10 new large projects to proceed in 2016.
Wood Mackenzie said that approximately 4 M/bpd of conventional oil production sourced from these new, non-U.S. projects are not economically viable at $60/bbl.
Average production costs have fallen by 30-40% for U.S. shale wells, but only 10-12% for large, new projects elsewhere, FT cited Simon Flowers with Wood Mackenzie as saying. They've largely done so by pursuing lower rates from oil services companies, and by achieving enhanced productivity by drilling in better locations to maximize the use of "sweet spots," the WSJ noted in a report.
For this reason, U.S. shale “oil will be the majority of what’s likely to be developed over the next few years, but at the same time, with decline rates and projected demand we still need all of the 13 million barrels a day,” Flowers added.
Flowers was quoted by the WSJ as saying that he expects total new global O&G investment to be around $400 billion in 2016 and next year, down over 40% from $700 billion in 2014.
Wood Mackenzie expects investment to increase from 2018 as oil prices rebound or firms enact additional cost savings or a combination of the two, the WSJ reported.