Even with oil at $120 a barrel, the economics of some projects around the world are in doubt as development costs soared in recent years. Photo: Reuters

Ron Bousso London

INTERNATIONAL oil and gas exploration projects worth more than $150 billion (R1.7 trillion) are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.

As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard-to-reach fields located in some cases deep under sea level.

But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.

Now the outlook for onshore and offshore developments – from the Barents Sea to the Gulf or Mexico – looks as uncertain as the price of oil, which has plunged by 40 percent in the last five months to about $70 a barrel.

Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500bn and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

But with analysts forecasting oil to average $82.50 a barrel next year, around one-third of the spending, or a fifth of the volume, was unlikely to be approved, Per Magnus Nysveen, the head of analysis at Rystad Energy, said.

“At $70 a barrel, half of the overall volumes are at risk,” he said.

About one-third of the projects scheduled for FID next year are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.

Of those 20 billion barrels, about half are located in Canada’s oil sands and Venezuela’s tar sands, according to Nysveen.

Economics

Geographically, the projects on the balance are widespread.

Chevron’s North Sea Rosebank project was among those with a shaky future and a decision on whether to go ahead with it would likely be pushed late into 2015 as the company assessed its economics, analysts said.

“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go,” said Bertrand Hodée, a research analyst at Paris-Based Raymond James.

He estimates a development cost of $10bn for Rosebank, with potential reserves of 300 million barrels.

Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years. Chevron’s Rosebank project has already been delayed for several years.

In response to a question from Reuters, the company said “the Rosebank project is in the Front End Engineering and Design phase”.

“The review of the economics and the additional engineering work is progressing…

“It is premature to make any statements on an FID date,” it said.

Hodée said any offshore project with a development cost above $30 a barrel would most likely be put on hold at current oil prices.

Least likely

Projects in Canada’s oil sands are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11bn.

Shell said in October that it was “less likely” to go ahead with unconventional projects in west Canada if oil fell below $80 a barrel. – Reuters