American Oil and Gas Reporter - September 2018 - 38

million for Mississippi Canyon 743 and
$3.3 million for Garden Banks 957, Exxon
Mobil submitted bids of $8.5 million for
De Soto Canyon 939 and $7.5 million
for De Soto Canyon 983, and Anadarko
bid $3.6 million for Walker Ridge 925.
Three of the top 10 high offers were
for tracts in 800-1,600 meters of water:
Shell's $4.6 million bid on Mississippi
Canyon 978, Anadarko's $3.9 million bid
on Green Canyon 473, and TOTAL's
$3.25 million bid on Garden Banks 872.
BOEM reports that the lone top 10
high bid for a block in water depths shallower than 800 meters was a $5.4 million
tender from Walter Oil & Gas on Mississippi Canyon 617 in 200-400 meters of
water, which ranked as the sale's fifth
highest single bid.
Bright Future
Commenting on the results of Sale
251, William Turner, senior research analyst at Wood Mackenzie, notes, "With a
decrease in acreage from March (Sale
250) and the prospect of lower royalty
payments for deepwater acreage off the
table, expectations were muted going into
this lease sale. However, with an increase
in competitive bids and dollar amount
from the last round, companies demonstrated their continued confidence in the
region. Increased competition centring
on more selective blocks close to infrastructure tells us capital is returning to the
Gulf."
Echoing that sentiment, analysis from
Rystad Energy underscores the improved
outlook for all offshore projects. After
what Rystad labels the biggest drop in
project investments ever seen in the in-

dustry from 2014 to 2016-when approvals
of new oil-related projects fell globally
by two-thirds, raising the prospect of
future supply shortages-the pace of investment approvals has accelerated in recent months.
In fact, Rystad projects that up to 100
offshore projects will be sanctioned around
the world in 2018-equaling the total number of projects sanctioned in both 2016
and 2017. "These projects represent a
collective $100 billion worth of capital
investment," remarks says Audun Martinsen, vice president of oil field service
research at Rystad Energy.
The 100 projects are geographically
dispersed in offshore basins around the
globe, from Asia and Europe, to Africa
and North and South America. Pointing
out that 60 percent of the companies
looking to finance their project development costs can do so through internal
cash flows, Martinsen says Rystad Energy
sees "a very small risk of these projects
not materializing," especially with stronger
oil prices and streamlined offshore project
development costs.
"The average breakeven price for
deepwater developments currently stands
at about $45 a barrel, and for shallow
water it is close to $30/bbl," Martinsen
reports. "Meanwhile, payback times have
fallen by three years for deepwater projects
and by 1.5 years for shallow-water (projects) since 2014. Offshore projects can
now compete with some of the best
acreages in the Permian basin in terms
of break-even prices."
Project Redesigns
Shell's Vito four-block project in 4,000

Oil & Gas Exports

DC4
DC2
Drill Center (DC1)
DC3
Sigbee
Escarpment
DC5

BP and its partners revised the original development plan for Mad Dog Phase 2 in the
Green Canyon area to reduce the project's total estimated cost by 60 percent. Mad Dog
Phase 2's semisubmersible ﬂoating production platform will have the capacity to produce up to 140,000 bbl/d from 14 subsea production wells and inject up to 140,000 bbl/d
of water to enhance oil recovery. First production is expected in late 2021.

38 THE AMERICAN OIL & GAS REPORTER

feet of water in the subsalt Miocene play
in the Mississippi Canyon area offers
one example of the new cost efficiencies,
standardization strategies and streamlined
development concepts operators are implementing to reduce risk and optimize
economics. Anadarko discovered the field
in July 2009, drilling the discovery well
to 32,000 feet and encountering 250 feet
of net oil pay.
After assuming operatorship of Vito
in late 2009, Shell drilled additional delineation wells and conceived of an
initial development strategy. In 2015,
Shell and its partners began redesigning
Vito's development concept using a simplified host design and subsea infrastructure, ultimately reducing cost estimates by more than 70 percent from the
original concept.
The redesign consists of a four-column
semisubmersible floating production unit
with a single topside module connected
to eight subsea wells with deep (18,000foot) in-well gas lift. According to Shell,
Vito's break-even price is estimated at
less than $35/bbl.
"With a lower-cost developmental approach, the Vito project is a very competitive and attractive opportunity industrywide," Shell Upstream Director Andy
Brown said last spring in announcing
the final investment decision. He added
that Vito's cost savings are the result of
the simplified design, in addition to working collaboratively with vendors in a variety of areas including well design and
completions, subsea, contracting and topsides design.
First oil is scheduled in 2021, with
Vito's peak daily production expected to
be 100,000 barrels of oil equivalent. The
field has an estimated recoverable resource
of 300 million boe.
Vito and other recently sanctioned
deepwater projects are establishing a clear
trend of leaner and lower-cost standardized
development designs, according to a Rystad Energy report. Of the 17 global deepwater projects sanctioned between January
2017 and June 2018, Rystad says as many
as 16 previously had been in the development queue but were put on hold during
the downturn. These same projects can
now pass operators' investment criteria
down to $30/bbl, the report states.
"The 16 delayed deepwater projects
that have attained final investment decisions so far will collectively develop
around 6 billion boe and require investments totaling $43.2 billion to reach first
production," says Readul Islam, senior
research analyst at Rystad Energy. "Deepwater projects on either side of the Atlantic
Ocean-from Norway to the United States
and from Angola to Brazil-are leading
American Oil and Gas Reporter - September 2018

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