Deepwater production costs are falling at a dramatic pace
and it will have massive implications for around $ 15 billion in investments
eventually lined up in the KG Basin. Costs are already down 30% from 2014.
A period of aggressive cost compression has brought average breakeven costs for projects down from $70/bbl in 2014 to approximately $40-50/bbl in 1Q 2017. This breakeven analysis reflects full life-cycle economics that includes government take, development drilling, facilities, equipment, subsea, and operating expenditure with a 10% allowance for return on capital.
A period of aggressive cost compression has brought average breakeven costs for projects down from $70/bbl in 2014 to approximately $40-50/bbl in 1Q 2017. This breakeven analysis reflects full life-cycle economics that includes government take, development drilling, facilities, equipment, subsea, and operating expenditure with a 10% allowance for return on capital.
While commercial gains primarily drove 2015 breakeven estimates to $55/bbl, engineering re-designs and efficiency improvements are driving the additional $10-15/bbl impact on breakeven projections for 2017 estimates. The focus is now shifting to get to successful execution of $40/bbl or lower breakeven costs. This will need step changes in efficiency and performance.
But not impossible.
Where have the cuts taken place?
Which are the major areas where deepwater costs are coming
down?
Find out which components are contributing most to the cost decrease.
There is a direct cost reduction, there an overrun reduction, there are savings on shorter time cycles and standardizations. In direct cost reductions, component wise reductions are highlighted in the analysis. Standardization impact is measured as also faster completion time.
Additional benefits include:
-- Lower capex
-- Purchase rationalization
-- More effective engineering hours
Find out which components are contributing most to the cost decrease.
There is a direct cost reduction, there an overrun reduction, there are savings on shorter time cycles and standardizations. In direct cost reductions, component wise reductions are highlighted in the analysis. Standardization impact is measured as also faster completion time.
Additional benefits include:
-- Lower capex
-- Purchase rationalization
-- More effective engineering hours
Can ONGC ever join hands with RIL?
Modeling exercises have shown that a multi-operator
approach, co-developments and partnerships can make a big difference. Performance driven commercial collaborations between suppliers and producers is
the new norm. One example of the collaboration model is to build a cross-operator inventory
of follow-on activities that provides opportunities for tiebacks to existing
deepwater facilities.
This multi-operator approach could accelerate development activities at a reduced cost, significantly improving rates of return and supporting continued investment.
Other opportunities for operator collaboration include sharing logistics costs, such as helicopter flights, within a basin. Collaboration initiatives are already under way in the North Sea, where offshore operators announced in 2016 that they were in talks to merge substantial parts of their operations, including procurement, logistics, and finance departments
Gulf of Mexico has seven upstream operators collaborating to reduce costs
In India however, the best collaboration can be between ONGC RIL tenders contracts regime in the KG Basin
The economics of scale can be massive.
Nevertheless, political compulsions of the new government do not allow for such collaborations as of the moment but there is no harm in conducting a broader study on the benefits of multi-operator approach in the KG Basin, it will be a helpful first step.
If the economics can be established, selling it to all stakeholders can be a subsequent exercise
This multi-operator approach could accelerate development activities at a reduced cost, significantly improving rates of return and supporting continued investment.
Other opportunities for operator collaboration include sharing logistics costs, such as helicopter flights, within a basin. Collaboration initiatives are already under way in the North Sea, where offshore operators announced in 2016 that they were in talks to merge substantial parts of their operations, including procurement, logistics, and finance departments
Gulf of Mexico has seven upstream operators collaborating to reduce costs
In India however, the best collaboration can be between ONGC RIL tenders contracts regime in the KG Basin
The economics of scale can be massive.
Nevertheless, political compulsions of the new government do not allow for such collaborations as of the moment but there is no harm in conducting a broader study on the benefits of multi-operator approach in the KG Basin, it will be a helpful first step.
If the economics can be established, selling it to all stakeholders can be a subsequent exercise
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