Years of Offshore Investments Could be Valueless

Years of offshore investments could be valueless.

That’s according to Rystad Energy, which stated that international exploration and production (E&P) companies are struggling to make money from offshore investments made during the latest investment upturn.

In a new study, Rystad evaluated all offshore oil fields sanctioned since 2010 and ranked them by estimated value per barrel of oil under various oil price scenarios. According to the company, entire vestiges of offshore field development projects will fail to offer a return on investment in today’s oil price environment.

For example, Rystad noted that offshore projects sanctioned between 2010 and 2012 have “barely been able to generate any value” for E&P companies and highlighted that projects sanctioned between 2013 and 2014 are “expected to have no value creation”.

In addition, Rystad revealed that for upstream companies to come out of the 2013-2014 investment years without “massive losses”, the oil price will need to increase to around $70 per barrel.

Looking further ahead, Rystad said value creation is positive for sanctioning between 2015 and 2018, even when applying a future oil price of only $40 per barrel.

“Looking back at the offshore projects sanctioned between 2010 and 2014 with the knowledge we have today, we see that the last offshore investment cycle is struggling to create value,” Espen Erlingsen, head of upstream research at Rystad Energy, said in a company statement.

“High development costs combined with low oil prices have severely undermined the profitability of these assets,” Erlingsen added.

“With the pivot in development costs from 2015 onwards, the projects sanctioned over the last four years are in a much better position,” the Rystad representative continued.

Rystad Energy describes itself as an independent energy research and business intelligence company. The business is headquartered in Oslo, Norway, and has locations all over the world.

Earlier this month, Rystad revealed that, in 2019, offshore investments are on the rise again, while tight oil investments have started to decline.

To contact the author, email andreas.exarheas@rigzone.com